Watches of Switzerland Group (LON:WOSG) Is Experiencing Growth In Returns On Capital

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. With that in mind, we've noticed some promising trends at Watches of Switzerland Group (LON:WOSG) so let's look a bit deeper.

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

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. To calculate this metric for Watches of Switzerland Group, this is the formula:

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

0.17 = UK£167m ÷ (UK£1.3b - UK£302m) (Based on the trailing twelve months to October 2023).

Therefore, Watches of Switzerland Group has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 14% generated by the Specialty Retail industry.

See our latest analysis for Watches of Switzerland Group

Above you can see how the current ROCE for Watches of Switzerland Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Watches of Switzerland Group.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Watches of Switzerland Group. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 180% more capital is being employed now too. So we're very much inspired by what we're seeing at Watches of Switzerland Group thanks to its ability to profitably reinvest capital.

Our Take On Watches of Switzerland Group's ROCE

In summary, it's great to see that Watches of Switzerland Group 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. Considering the stock has delivered 22% to its stockholders over the last three years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

While Watches of Switzerland Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.