The Trend Of High Returns At LVMH Moët Hennessy - Louis Vuitton Société Européenne (EPA:MC) Has Us Very Interested

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in LVMH Moët Hennessy - Louis Vuitton Société Européenne's (EPA:MC) returns on capital, so let's have a look.

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. The formula for this calculation on LVMH Moët Hennessy - Louis Vuitton Société Européenne is:

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

0.20 = €21b ÷ (€135b - €32b) (Based on the trailing twelve months to December 2022).

Thus, LVMH Moët Hennessy - Louis Vuitton Société Européenne has an ROCE of 20%. On its own that's a fantastic return on capital, though it's the same as the Luxury industry average of 20%.

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

Above you can see how the current ROCE for LVMH Moët Hennessy - Louis Vuitton Société Européenne 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 LVMH Moët Hennessy - Louis Vuitton Société Européenne.

What Can We Tell From LVMH Moët Hennessy - Louis Vuitton Société Européenne's ROCE Trend?

LVMH Moët Hennessy - Louis Vuitton Société Européenne is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 20%. Basically the business is earning more per dollar of capital invested and in addition to that, 88% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On LVMH Moët Hennessy - Louis Vuitton Société Européenne's ROCE

In summary, it's great to see that LVMH Moët Hennessy - Louis Vuitton Société Européenne can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 196% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.