Returns On Capital At Chocoladefabriken Lindt & Sprüngli (VTX:LISN) Have Hit The Brakes

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. In light of that, when we looked at Chocoladefabriken Lindt & Sprüngli (VTX:LISN) and its ROCE trend, we weren't exactly thrilled.

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Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.13 = CHF906m ÷ (CHF9.2b - CHF2.0b) (Based on the trailing twelve months to December 2024).

So, Chocoladefabriken Lindt & Sprüngli has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.

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 analyst report for Chocoladefabriken Lindt & Sprüngli .

The Trend Of ROCE

Over the past five years, Chocoladefabriken Lindt & Sprüngli's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Chocoladefabriken Lindt & Sprüngli to be a multi-bagger going forward. This probably explains why Chocoladefabriken Lindt & Sprüngli is paying out 50% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line On Chocoladefabriken Lindt & Sprüngli's ROCE

We can conclude that in regards to Chocoladefabriken Lindt & Sprüngli's returns on capital employed and the trends, there isn't much change to report on. Although the market must be expecting these trends to improve because the stock has gained 52% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you're still interested in Chocoladefabriken Lindt & Sprüngli it's worth checking out our FREE intrinsic value approximation for LISN to see if it's trading at an attractive price in other respects.

While Chocoladefabriken Lindt & Sprüngli isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.