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# PUMA SE (ETR:PUM) Earns Among The Best Returns In Its Industry

Today we'll evaluate PUMA SE (ETR:PUM) to determine whether it could have potential as an investment idea. Specifically, we're going to calculate its Return On Capital Employed (ROCE), in the hopes of getting some insight into the business.

Firstly, we'll go over how we calculate ROCE. Then we'll compare its ROCE to similar companies. And finally, we'll look at how its current liabilities are impacting its ROCE.

### Understanding Return On Capital Employed (ROCE)

ROCE measures the 'return' (pre-tax profit) a company generates from capital employed in its business. In general, businesses with a higher ROCE are usually better quality. Ultimately, it is a useful but imperfect metric. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.

### So, How Do We Calculate ROCE?

Analysts use this formula to calculate return on capital employed:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) Ã· (Total Assets - Current Liabilities)

Or for PUMA:

0.15 = â‚¬390m Ã· (â‚¬4.2b - â‚¬1.5b) (Based on the trailing twelve months to June 2019.)

Therefore, PUMA has an ROCE of 15%.

See our latest analysis for PUMA

### Does PUMA Have A Good ROCE?

One way to assess ROCE is to compare similar companies. In our analysis, PUMA's ROCE is meaningfully higher than the 9.9% average in the Luxury industry. We consider this a positive sign, because it suggests it uses capital more efficiently than similar companies. Separate from PUMA's performance relative to its industry, its ROCE in absolute terms looks satisfactory, and it may be worth researching in more depth.

In our analysis, PUMA's ROCE appears to be 15%, compared to 3 years ago, when its ROCE was 6.1%. This makes us wonder if the company is improving. The image below shows how PUMA's ROCE compares to its industry, and you can click it to see more detail on its past growth.

It is important to remember that ROCE shows past performance, and is not necessarily predictive. ROCE can be misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. ROCE is only a point-in-time measure. What happens in the future is pretty important for investors, so we have prepared a free report on analyst forecasts for PUMA.

### How PUMA's Current Liabilities Impact Its ROCE

Current liabilities include invoices, such as supplier payments, short-term debt, or a tax bill, that need to be paid within 12 months. The ROCE equation subtracts current liabilities from capital employed, so a company with a lot of current liabilities appears to have less capital employed, and a higher ROCE than otherwise. To counteract this, we check if a company has high current liabilities, relative to its total assets.

PUMA has total liabilities of â‚¬1.5b and total assets of â‚¬4.2b. Therefore its current liabilities are equivalent to approximately 37% of its total assets. PUMA has a medium level of current liabilities, which would boost the ROCE.

### Our Take On PUMA's ROCE

With a decent ROCE, the company could be interesting, but remember that the level of current liabilities make the ROCE look better. PUMA shapes up well under this analysis, but it is far from the only business delivering excellent numbers . You might also want to check this free collection of companies delivering excellent earnings growth.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.