Shareholders Are Optimistic That Kimberly-Clark (NYSE:KMB) Will Multiply In Value

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Kimberly-Clark (NYSE:KMB) looks attractive right now, so lets see what the trend of returns can tell us.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Kimberly-Clark:

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

0.31 = US$3.1b ÷ (US$17b - US$7.1b) (Based on the trailing twelve months to September 2024).

Thus, Kimberly-Clark has an ROCE of 31%. In absolute terms that's a great return and it's even better than the Household Products industry average of 17%.

See our latest analysis for Kimberly-Clark

Above you can see how the current ROCE for Kimberly-Clark compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Kimberly-Clark .

What Does the ROCE Trend For Kimberly-Clark Tell Us?

Kimberly-Clark deserves to be commended in regards to it's returns. The company has consistently earned 31% for the last five years, and the capital employed within the business has risen 22% in that time. Now considering ROCE is an attractive 31%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Kimberly-Clark can keep this up, we'd be very optimistic about its future.

On a separate but related note, it's important to know that Kimberly-Clark has a current liabilities to total assets ratio of 41%, 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...

In summary, we're delighted to see that Kimberly-Clark has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. In light of this, the stock has only gained 21% over the last five years for shareholders who have owned the stock in this period. So to determine if Kimberly-Clark is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

Kimberly-Clark does have some risks though, and we've spotted 1 warning sign for Kimberly-Clark that you might be interested in.

Kimberly-Clark is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.