Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at G-III Apparel Group (NASDAQ:GIII) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
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 G-III Apparel Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.095 = US$252m ÷ (US$3.3b - US$643m) (Based on the trailing twelve months to October 2022).
Thus, G-III Apparel Group has an ROCE of 9.5%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 18%.
Check out our latest analysis for G-III Apparel Group
In the above chart we have measured G-III Apparel Group'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 G-III Apparel Group here for free.
What Can We Tell From G-III Apparel Group's ROCE Trend?
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 9.5%. The amount of capital employed has increased too, by 40%. 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.
The Bottom Line On G-III Apparel Group's ROCE
All in all, it's terrific to see that G-III Apparel Group is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 60% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
On a final note, we found 3 warning signs for G-III Apparel Group (2 are concerning) you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.
About NasdaqGS:GIII
G-III Apparel Group
Designs, sources, and markets women’s and men’s apparel in the United States and internationally.
Flawless balance sheet and fair value.
