Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Looking at Fisher & Paykel Healthcare (NZSE:FPH), it does have a high ROCE right now, but lets see how returns are trending.

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What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Fisher & Paykel Healthcare, this is the formula:

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

0.20 = NZ$419m ÷ (NZ$2.4b - NZ$373m) (Based on the trailing twelve months to September 2024).

So, Fisher & Paykel Healthcare has an ROCE of 20%.  On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

See our latest analysis for Fisher & Paykel Healthcare NZSE:FPH Return on Capital Employed May 21st 2025

In the above chart we have measured Fisher & Paykel Healthcare'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 analyst report for Fisher & Paykel Healthcare .

What Does the ROCE Trend For Fisher & Paykel Healthcare Tell Us?

In terms of Fisher & Paykel Healthcare's historical ROCE movements, the trend isn't fantastic. While it's comforting that the ROCE is high, five years ago it was 32%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Fisher & Paykel Healthcare's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Fisher & Paykel Healthcare. These trends are starting to be recognized by investors since the stock has delivered a 29% gain to shareholders who've held over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

Story Continues

If you want to continue researching Fisher & Paykel Healthcare, you might be interested to know about the 2 warning signsthat our analysis has discovered.

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

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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.

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