Returns On Capital At Chocoladefabriken Lindt & Sprüngli (VTX:LISN) Paint A Concerning Picture

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Chocoladefabriken Lindt & Sprüngli (VTX:LISN), it didn't seem to tick all of these boxes.

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 Chocoladefabriken Lindt & Sprüngli, this is the formula:

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).

Therefore, Chocoladefabriken Lindt & Sprüngli has an ROCE of 8.1%. In absolute terms, that's a low return but it's around the Food industry average of 10%.

Check out our latest analysis for Chocoladefabriken Lindt & Sprüngli

Above you can see how the current ROCE for Chocoladefabriken Lindt & Sprüngli compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Chocoladefabriken Lindt & Sprüngli's ROCE Trend?

In terms of Chocoladefabriken Lindt & Sprüngli's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 8.1% from 10% five years ago. 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

In summary, Chocoladefabriken Lindt & Sprüngli is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 88% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to continue researching Chocoladefabriken Lindt & Sprüngli, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.