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Why The 22% Return On Capital At Nu Skin Enterprises (NYSE:NUS) Should Have Your Attention

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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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Nu Skin Enterprises (NYSE:NUS) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Nu Skin Enterprises, this is the formula:

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

0.22 = US$311m ÷ (US$2.0b - US$616m) (Based on the trailing twelve months to June 2021).

Therefore, Nu Skin Enterprises has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 18% earned by companies in a similar industry.

Check out our latest analysis for Nu Skin Enterprises

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In the above chart we have measured Nu Skin Enterprises' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Nu Skin Enterprises.

The Trend Of ROCE

Nu Skin Enterprises has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 25% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On Nu Skin Enterprises' ROCE

In summary, we're delighted to see that Nu Skin Enterprises has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 27% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know about the risks facing Nu Skin Enterprises, we've discovered 2 warning signs that you should be aware of.

Nu Skin Enterprises is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.