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If you’re looking for a multibagger, there are a few things to keep in mind. In an ideal world, companies would invest more capital in their operations, and ideally the return on that capital would also increase. After all, this shows that this is a business that is increasing its profitability and reinvesting its profits.With that in mind, the ROCE burberry group (LON:BRBY) looks attractive at the moment, so let’s see what the earnings trend can tell us.
Return on Capital Employed (ROCE): What is it?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (return) on the capital employed in the business. Analysts use the following formula to calculate Burberry Group’s profits.
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.25 = GBP 619 million ÷ (GBP 3.5 billion – GBP 1.1 billion) (Based on the previous 12 months to September 2023).
So, Burberry Group’s ROCE is 25%. In absolute terms, this is a very high profit margin, even better than the luxury industry average of 14%.
Check out our latest analysis for Burberry Group.
Above, you can see how Burberry Group’s current ROCE compares to its previous return on equity, but history can only tell us so much. To find out what analysts are predicting for the future, check out our free analyst report for Burberry Group.
What do Burberry Group’s ROCE trends tell us?
We can’t help but be impressed with Burberry Group’s return on capital. The company has invested 58% more capital in the past five years, and its return on capital has remained stable at 25%. Considering the ROCE is an attractive 25%, this combination is actually very attractive. Because this combination means that companies can consistently invest money and generate these high profits. If this trend continues, it wouldn’t be surprising if the company becomes a multibagger.
Our take on Burberry Group’s ROCE
Ultimately, the company has proven that it can reinvest capital at high rates of return. You will remember that this is a multibagger feature. However, despite strong fundamentals, the stock is down 25% over the past five years, so there may be an opportunity here for smart investors. As such, smart investors may want to look further into this company in case it’s a good investment.
There is one more thing to note. 1 warning sign You need to work with Burberry Group and understand that as part of your investment process.
If you want to find more stocks with high returns, check this out. free This is a list of stocks with strong balance sheets and high return on equity.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
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