Why We Like The Returns At Oxford Industries (NYSE:OXM)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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 Oxford Industries' (NYSE:OXM) look very promising so lets take a look.

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

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. To calculate this metric for Oxford Industries, this is the formula:

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

0.24 = US$219m ÷ (US$1.2b - US$270m) (Based on the trailing twelve months to January 2023).

Therefore, Oxford Industries has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Luxury industry average of 18%.

View our latest analysis for Oxford Industries

In the above chart we have measured Oxford Industries' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Oxford Industries Tell Us?

Investors would be pleased with what's happening at Oxford Industries. The data shows that returns on capital have increased substantially over the last five years to 24%. The amount of capital employed has increased too, by 63%. So we're very much inspired by what we're seeing at Oxford Industries thanks to its ability to profitably reinvest capital.

What We Can Learn From Oxford Industries' ROCE

All in all, it's terrific to see that Oxford Industries is reaping the rewards from prior investments and is growing its capital base. And with a respectable 48% 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. In light of that, we think it's worth looking further into this stock because if Oxford Industries can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Oxford Industries, we've discovered 2 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.