If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Orell Füssli (VTX:OFN) and its ROCE trend, we weren't exactly thrilled.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Orell Füssli, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = CHF14m ÷ (CHF179m - CHF42m) (Based on the trailing twelve months to December 2022).
So, Orell Füssli has an ROCE of 10%. That's a pretty standard return and it's in line with the industry average of 9.8%.
Check out our latest analysis for Orell Füssli
Above you can see how the current ROCE for Orell Füssli 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 Orell Füssli here for free.
The Trend Of ROCE
Things have been pretty stable at Orell Füssli, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Orell Füssli to be a multi-bagger going forward. That being the case, it makes sense that Orell Füssli has been paying out 76% of its earnings to its shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.
Our Take On Orell Füssli's ROCE
In summary, Orell Füssli isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors appear hesitant that the trends will pick up because the stock has fallen 16% in the last five years. Therefore based on the analysis done in this article, we don't think Orell Füssli has the makings of a multi-bagger.
On a final note, we've found 1 warning sign for Orell Füssli that we think you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.