Capital Investment Trends At Burberry Group (LON:BRBY) Look Strong
If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. With that in mind, the ROCE of Burberry Group (LON:BRBY) looks attractive right now, so lets see what the trend of returns 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 yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Burberry Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.25 = UK£619m ÷ (UK£3.5b - UK£1.1b) (Based on the trailing twelve months to September 2023).
So, Burberry Group has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Luxury industry average of 14%.
Check out our latest analysis for Burberry Group
Above you can see how the current ROCE for Burberry Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Burberry Group .
What Does the ROCE Trend For Burberry Group Tell Us?
It's hard not to be impressed by Burberry Group's returns on capital. The company has employed 58% more capital in the last five years, and the returns on that capital have remained stable at 25%. Now considering ROCE is an attractive 25%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
Our Take On Burberry Group's ROCE
In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. However, despite the favorable fundamentals, the stock has fallen 25% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
One more thing to note, we've identified 1 warning sign with Burberry Group and understanding it should be part of your investment process.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.
