Here's What To Make Of Skechers U.S.A's (NYSE:SKX) Decelerating Rates Of Return

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Skechers U.S.A's (NYSE:SKX) trend of ROCE, we liked what we saw.

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. The formula for this calculation on Skechers U.S.A is:

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

0.14 = US$852m ÷ (US$8.0b - US$2.1b) (Based on the trailing twelve months to June 2024).

Therefore, Skechers U.S.A has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Luxury industry average of 13%.

Check out our latest analysis for Skechers U.S.A

In the above chart we have measured Skechers U.S.A's 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 analyst report for Skechers U.S.A .

So How Is Skechers U.S.A's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 73% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Skechers U.S.A has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

In the end, Skechers U.S.A has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 66% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Skechers U.S.A could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for SKX on our platform quite valuable.

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.