Capital investment trends at Meridian Bioscience (NASDAQ: VIVO) appear strong

If we want to find a stock that could multiply over the long term, what are the underlying trends we should be looking for? A common approach is to try to find a company with Return on capital employed (ROCE) which is increasing, in line with growth quantity capital employed. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. So when we ran our eyes Meridian Biosciences (NASDAQ: VIVO) ROCE trend, we really liked what we saw.

What is return on capital employed (ROCE)?

For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. To calculate this metric for Meridian Bioscience, here is the formula:

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

0.25 = $101 million ÷ ($450 million – $47 million) (Based on the last twelve months to September 2021).

So, Meridian Bioscience has a ROCE of 25%. That’s a fantastic return and not only that, it tops the 8.2% average earned by companies in a similar industry.

NasdaqGS:VIVO Return on Capital Employed January 20, 2022

Above, you can see how Meridian Bioscience’s current ROCE compares to its past returns on capital, but there’s little you can say about the past. If you want to see what analysts predict for the future, you should check out our free report for Meridian Bioscience.

What can we say about Meridian Bioscience’s ROCE trend?

We’d rather be happy with returns on capital like Meridian Bioscience. Over the past five years, ROCE has remained relatively stable at around 25% and the company has deployed 75% more capital into its operations. With such high returns, it’s great that the company can continually reinvest its money at such attractive rates of return. If these trends can continue, we wouldn’t be surprised if the company went multi-bagger.

In conclusion…

Meridian Bioscience has demonstrated proficiency in generating high returns on increasing amounts of capital employed, which we are delighted about. So it’s no surprise that shareholders have earned a respectable 76% return if they’ve held for the past five years. So while investors seem to recognize these promising trends, we still think the stock warrants further research.

On the other side of ROCE, we have to consider valuation. That’s why we have a FREE intrinsic value estimate on our platform definitely worth checking out.

If you want to find more stocks that have generated high returns, check out this free list of stocks with strong balance sheets that also generate high returns on equity.

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