In This Article:
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Reckitt Benckiser Group's (LON:RKT) look very promising so lets take a look.
We've discovered 3 warning signs about Reckitt Benckiser Group. View them for free.
Understanding Return On Capital Employed (ROCE)
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 Reckitt Benckiser Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = UK£3.4b ÷ (UK£25b - UK£7.9b) (Based on the trailing twelve months to December 2024).
Therefore, Reckitt Benckiser Group has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.
View our latest analysis for Reckitt Benckiser Group
Above you can see how the current ROCE for Reckitt Benckiser Group 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 Reckitt Benckiser Group .
How Are Returns Trending?
You'd find it hard not to be impressed with the ROCE trend at Reckitt Benckiser Group. The data shows that returns on capital have increased by 46% over the trailing five years. The company is now earning UK£0.2 per dollar of capital employed. In regards to capital employed, Reckitt Benckiser Group appears to been achieving more with less, since the business is using 25% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.
What We Can Learn From Reckitt Benckiser Group's ROCE
In the end, Reckitt Benckiser Group has proven it's capital allocation skills are good with those higher returns from less amount of capital. Astute investors may have an opportunity here because the stock has declined 20% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.