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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Lifetime Brands (NASDAQ:LCUT) looks quite promising in regards to its trends of return on capital.
Understanding 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. The formula for this calculation on Lifetime Brands is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.051 = US$27m ÷ (US$665m - US$135m) (Based on the trailing twelve months to June 2023).
Thus, Lifetime Brands has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 15%.
Check out our latest analysis for Lifetime Brands
Above you can see how the current ROCE for Lifetime Brands compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Lifetime Brands here for free.
So How Is Lifetime Brands' ROCE Trending?
Lifetime Brands is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 161% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
In Conclusion...
To bring it all together, Lifetime Brands has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 45% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.
One more thing: We've identified 2 warning signs with Lifetime Brands (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.
While Lifetime Brands may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.