Here's What's Concerning About Chocoladefabriken Lindt & Sprüngli's (VTX:LISN) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. However, after investigating Chocoladefabriken Lindt & Sprüngli (VTX:LISN), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. The formula for this calculation on Chocoladefabriken Lindt & Sprüngli is:

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

0.081 = CHF561m ÷ (CHF8.1b - CHF1.2b) (Based on the trailing twelve months to June 2021).

So, Chocoladefabriken Lindt & Sprüngli has an ROCE of 8.1%. On its own, that's a low figure but it's around the 9.8% average generated by the Food industry.

See our latest analysis for Chocoladefabriken Lindt & Sprüngli

In the above chart we have measured Chocoladefabriken Lindt & Sprüngli's 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 report on analyst forecasts for the company.

How Are Returns Trending?

In terms of Chocoladefabriken Lindt & Sprüngli's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 10%, but since then they've fallen to 8.1%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Chocoladefabriken Lindt & Sprüngli's ROCE

Bringing it all together, while we're somewhat encouraged by Chocoladefabriken Lindt & Sprüngli's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 87% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

While Chocoladefabriken Lindt & Sprüngli doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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