ESOTIQ & Henderson (WSE:EAH) Is Looking To Continue Growing Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at ESOTIQ & Henderson (WSE:EAH) and its trend of ROCE, we really liked what we saw.

What Is 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. Analysts use this formula to calculate it for ESOTIQ & Henderson:

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

0.18 = zł16m ÷ (zł140m - zł51m) (Based on the trailing twelve months to March 2024).

So, ESOTIQ & Henderson has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Luxury industry average of 17%.

Check out our latest analysis for ESOTIQ & Henderson

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of ESOTIQ & Henderson.

What Does the ROCE Trend For ESOTIQ & Henderson Tell Us?

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 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 22%. 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.

What We Can Learn From ESOTIQ & Henderson's ROCE

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 a remarkable 286% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if ESOTIQ & Henderson can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 2 warning signs facing ESOTIQ & Henderson that you might find interesting.

While ESOTIQ & Henderson 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.