Did you know there are some financial metrics that can provide clues of a potential 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. Speaking of which, we noticed some great changes in Rémy Cointreau's (EPA:RCO) 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 Rémy Cointreau is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = €343m ÷ (€2.8b - €840m) (Based on the trailing twelve months to September 2021).
Thus, Rémy Cointreau has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 6.9% generated by the Beverage industry.
In the above chart we have measured Rémy Cointreau'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 report for Rémy Cointreau.
What The Trend Of ROCE Can Tell Us
Rémy Cointreau's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 51% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
What We Can Learn From Rémy Cointreau's ROCE
To sum it up, Rémy Cointreau is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 123% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Rémy Cointreau can keep these trends up, it could have a bright future ahead.
While Rémy Cointreau looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether RCO is currently trading for a fair price.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.