National Research (NASDAQ:NRC) Is Achieving High Returns On Its Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So when we looked at the ROCE trend of National Research (NASDAQ:NRC) we really liked what we saw.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for National Research, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.42 = US$49m ÷ (US$156m - US$39m) (Based on the trailing twelve months to September 2021).
Thus, National Research has an ROCE of 42%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.
Check out our latest analysis for National Research
Historical performance is a great place to start when researching a stock so above you can see the gauge for National Research's ROCE against it's prior returns. If you're interested in investigating National Research's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For National Research Tell Us?
Investors would be pleased with what's happening at National Research. Over the last five years, returns on capital employed have risen substantially to 42%. Basically the business is earning more per dollar of capital invested and in addition to that, 33% more capital is being employed now too. So we're very much inspired by what we're seeing at National Research thanks to its ability to profitably reinvest capital.
The Key Takeaway
In summary, it's great to see that National Research can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 149% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if National Research can keep these trends up, it could have a bright future ahead.
Like most companies, National Research does come with some risks, and we've found 2 warning signs that you should be aware of.
National Research is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
