Why The 20% Return On Capital At LVMH Moët Hennessy - Louis Vuitton Société Européenne (EPA:MC) Should Have Your Attention

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. So when we looked at the ROCE trend of LVMH Moët Hennessy - Louis Vuitton Société Européenne (EPA:MC) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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)

0.20 = €22b ÷ (€144b - €33b) (Based on the trailing twelve months to June 2024).

Thus, LVMH Moët Hennessy - Louis Vuitton Société Européenne has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Luxury industry average of 16%.

Check out 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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for LVMH Moët Hennessy - Louis Vuitton Société Européenne .

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

The trends we've noticed at LVMH Moët Hennessy - Louis Vuitton Société Européenne are quite reassuring. 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, 60% 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.

The Bottom Line 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. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 87% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing LVMH Moët Hennessy - Louis Vuitton Société Européenne, we've discovered 1 warning sign that you should be aware of.

LVMH Moët Hennessy - Louis Vuitton Société Européenne is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.

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