Returns Are Gaining Momentum At Interparfums (EPA:ITP)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Interparfums' (EPA:ITP) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Interparfums, this is the formula:

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

0.19 = €138m ÷ (€988m - €248m) (Based on the trailing twelve months to December 2022).

Thus, Interparfums has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Personal Products industry average of 11% it's much better.

View our latest analysis for Interparfums

Above you can see how the current ROCE for Interparfums compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Interparfums Tell Us?

Investors would be pleased with what's happening at Interparfums. The data shows that returns on capital have increased substantially over the last five years to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 60% more capital is being employed now too. So we're very much inspired by what we're seeing at Interparfums thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Interparfums has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

While Interparfums looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ITP is currently trading for a fair price.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.