ESOTIQ & Henderson (WSE:EAH) Is Investing Its Capital With Increasing Efficiency

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at ESOTIQ & Henderson's (WSE:EAH) look very promising so lets take a look.

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

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. To calculate this metric for ESOTIQ & Henderson, this is the formula:

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

0.21 = zł19m ÷ (zł167m - zł80m) (Based on the trailing twelve months to September 2022).

So, ESOTIQ & Henderson has an ROCE of 21%. In absolute terms that's a very respectable return and compared to the Luxury industry average of 18% it's pretty much on par.

See our latest analysis for ESOTIQ & Henderson

Historical performance is a great place to start when researching a stock so above you can see the gauge for ESOTIQ & Henderson's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of ESOTIQ & Henderson, check out these free graphs here.

So How Is ESOTIQ & Henderson's ROCE Trending?

The trends we've noticed at ESOTIQ & Henderson are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 21%. The amount of capital employed has increased too, by 88%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a separate but related note, it's important to know that ESOTIQ & Henderson has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

In Conclusion...

To sum it up, ESOTIQ & Henderson has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 78% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing ESOTIQ & Henderson, we've discovered 3 warning signs that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.