These Return Metrics Don't Make Samsonite International (HKG:1910) Look Too Strong

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after glancing at the trends within Samsonite International (HKG:1910), we weren't too hopeful.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Samsonite International is:

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

0.03 = US$119m ÷ (US$4.9b - US$918m) (Based on the trailing twelve months to December 2021).

Thus, Samsonite International has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 9.0%.

See our latest analysis for Samsonite International

In the above chart we have measured Samsonite International's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Samsonite International here for free.

How Are Returns Trending?

In terms of Samsonite International's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 9.7%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Samsonite International becoming one if things continue as they have.

Our Take On Samsonite International's ROCE

In summary, it's unfortunate that Samsonite International is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 39% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you'd like to know more about Samsonite International, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.

While Samsonite International isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.