If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating InvoCare (ASX:IVC), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for InvoCare:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.047 = AU$73m ÷ (AU$1.8b - AU$198m) (Based on the trailing twelve months to December 2021).

Therefore, InvoCare has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Consumer Services industry average of 6.7%.

Check out our latest analysis for InvoCare

In the above chart we have measured InvoCare's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for InvoCare.

How Are Returns Trending?

When we looked at the ROCE trend at InvoCare, we didn't gain much confidence. To be more specific, ROCE has fallen from 9.4% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for InvoCare. These growth trends haven't led to growth returns though, since the stock has fallen 15% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you're still interested in InvoCare it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While InvoCare isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.