Hugo Boss (ETR:BOSS) Will Want To Turn Around Its Return Trends

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. In light of that, when we looked at Hugo Boss (ETR:BOSS) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Hugo Boss, this is the formula:

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

0.075 = €127m ÷ (€2.5b - €843m) (Based on the trailing twelve months to September 2021).

Therefore, Hugo Boss has an ROCE of 7.5%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 12%.

View our latest analysis for Hugo Boss

Above you can see how the current ROCE for Hugo Boss compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hugo Boss.

What Does the ROCE Trend For Hugo Boss Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 29% five years ago, while the business's capital employed increased by 52%. That being said, Hugo Boss raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Hugo Boss might not have received a full period of earnings contribution from it.

In Conclusion...

While returns have fallen for Hugo Boss in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, total returns to shareholders over the last five years have been flat, which could indicate these growth trends potentially aren't accounted for yet by investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you're still interested in Hugo Boss it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

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.

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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.