Investors Shouldn't Overlook Oxford Industries' (NYSE:OXM) Impressive Returns On Capital
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Oxford Industries' (NYSE:OXM) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Oxford Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = US$219m ÷ (US$1.2b - US$270m) (Based on the trailing twelve months to January 2023).
Thus, Oxford Industries has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.
Check out our latest analysis for Oxford Industries
In the above chart we have measured Oxford Industries' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Oxford Industries here for free.
What Can We Tell From Oxford Industries' ROCE Trend?
Oxford Industries is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 24%. The amount of capital employed has increased too, by 63%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Key Takeaway
In summary, it's great to see that Oxford Industries can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has only returned 35% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
Like most companies, Oxford Industries does come with some risks, and we've found 2 warning signs that you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
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