Returns on Capital Paint A Bright Future For LVMH Moët Hennessy - Louis Vuitton Société Européenne (EPA:MC)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, the ROCE of LVMH Moët Hennessy - Louis Vuitton Société Européenne (EPA:MC) looks great, so lets see what the trend can tell us.

What Is 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. Analysts use this formula to calculate it for LVMH Moët Hennessy - Louis Vuitton Société Européenne:

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

0.21 = €22b ÷ (€139b - €34b) (Based on the trailing twelve months to June 2023).

Therefore, LVMH Moët Hennessy - Louis Vuitton Société Européenne has an ROCE of 21%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

See our latest analysis for LVMH Moët Hennessy - Louis Vuitton Société Européenne

In the above chart we have measured LVMH Moët Hennessy - Louis Vuitton Société Européenne'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.

So How Is LVMH Moët Hennessy - Louis Vuitton Société Européenne's ROCE Trending?

We like the trends that we're seeing from LVMH Moët Hennessy - Louis Vuitton Société Européenne. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. The amount of capital employed has increased too, by 88%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that LVMH Moët Hennessy - Louis Vuitton Société Européenne is reaping the rewards from prior investments and is growing its capital base. And a remarkable 170% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While LVMH Moët Hennessy - Louis Vuitton Société Européenne looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MC is currently trading for a fair price.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.