Unilever (LON:ULVR) Is Aiming To Keep Up Its Impressive Returns

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. That's why when we briefly looked at Unilever's (LON:ULVR) ROCE trend, we were very happy with what we saw.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Unilever, this is the formula:

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

0.21 = €11b ÷ (€80b - €25b) (Based on the trailing twelve months to December 2024).

Therefore, Unilever has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 13%.

See our latest analysis for Unilever

Above you can see how the current ROCE for Unilever compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Unilever for free.

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Unilever's returns on capital. The company has employed 24% more capital in the last five years, and the returns on that capital have remained stable at 21%. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Key Takeaway

In short, we'd argue Unilever has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. In light of this, the stock has only gained 28% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

Unilever does have some risks though, and we've spotted 1 warning sign for Unilever that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.