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Shareholders Would Enjoy A Repeat Of IRadimed's (NASDAQ:IRMD) Recent Growth In Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of IRadimed (NASDAQ:IRMD) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on IRadimed is:

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

0.20 = US$14m ÷ (US$80m - US$5.6m) (Based on the trailing twelve months to September 2022).

Thus, IRadimed has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Medical Equipment industry average of 11%.

See our latest analysis for IRadimed

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Above you can see how the current ROCE for IRadimed compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for IRadimed.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at IRadimed. The data shows that returns on capital have increased substantially over the last five years to 20%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 117%. So we're very much inspired by what we're seeing at IRadimed thanks to its ability to profitably reinvest capital.

Our Take On IRadimed's ROCE

All in all, it's terrific to see that IRadimed is reaping the rewards from prior investments and is growing its capital base. And a remarkable 131% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing IRadimed, we've discovered 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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.

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