Returns Are Gaining Momentum At EssilorLuxottica Société anonyme (EPA:EL)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in EssilorLuxottica Société anonyme's (EPA:EL) 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 EssilorLuxottica Société anonyme is:

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

0.064 = €3.3b ÷ (€61b - €9.7b) (Based on the trailing twelve months to December 2023).

Thus, EssilorLuxottica Société anonyme has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 8.6%.

Check out our latest analysis for EssilorLuxottica Société anonyme

In the above chart we have measured EssilorLuxottica Société anonyme'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 EssilorLuxottica Société anonyme .

So How Is EssilorLuxottica Société anonyme's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 6.4%. The amount of capital employed has increased too, by 24%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From EssilorLuxottica Société anonyme's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what EssilorLuxottica Société anonyme has. And a remarkable 107% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if EssilorLuxottica Société anonyme can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing EssilorLuxottica Société anonyme, we've discovered 1 warning sign that you should be aware of.

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.