If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. 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 Nido Education (ASX:NDO) and its trend of ROCE, we really liked what we saw.

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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. The formula for this calculation on Nido Education is:

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

0.11 = AU$31m ÷ (AU$324m - AU$37m) (Based on the trailing twelve months to December 2024).

Therefore, Nido Education has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Services industry average of 9.4%.

Check out our latest analysis for Nido Education

Above you can see how the current ROCE for Nido Education compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Nido Education for free.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Nido Education are quite reassuring. The data shows that returns on capital have increased substantially over the last three years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 365% more capital is being employed now too. So we're very much inspired by what we're seeing at Nido Education thanks to its ability to profitably reinvest capital.

Our Take On Nido Education's ROCE

All in all, it's terrific to see that Nido Education is reaping the rewards from prior investments and is growing its capital base. And given the stock has remained rather flat over the last year, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

While Nido Education looks impressive, no company is worth an infinite price. The intrinsic value infographic for NDO helps visualize whether it is currently trading for a fair price.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.