If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Ergo, when we looked at the ROCE trends at IDEXX Laboratories (NASDAQ:IDXX), we 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. Analysts use this formula to calculate it for IDEXX Laboratories:

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

0.47 = US$1.1b ÷ (US$3.4b - US$1.1b) (Based on the trailing twelve months to June 2024).

So, IDEXX Laboratories has an ROCE of 47%. That's a fantastic return and not only that, it outpaces the average of 9.3% earned by companies in a similar industry.

In the above chart we have measured IDEXX Laboratories' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for IDEXX Laboratories .

What Does the ROCE Trend For IDEXX Laboratories Tell Us?

In terms of IDEXX Laboratories' history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 47% and the business has deployed 108% more capital into its operations. Now considering ROCE is an attractive 47%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

What We Can Learn From IDEXX Laboratories' ROCE

IDEXX Laboratories has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has followed suit returning a meaningful 75% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for IDXX on our platform that is definitely worth checking out.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.