Yahoo Finance Returns On Capital At La-Z-Boy (NYSE:LZB) Have Hit The Brakes
To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over La-Z-Boy's (NYSE:LZB) trend of ROCE, we liked what we saw.
What Is 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 La-Z-Boy is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = US$246m ÷ (US$1.8b - US$509m) (Based on the trailing twelve months to January 2023).
So, La-Z-Boy has an ROCE of 18%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Durables industry average of 17%.
View our latest analysis for La-Z-Boy
In the above chart we have measured La-Z-Boy's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 18% and the business has deployed 92% more capital into its operations. 18% is a pretty standard return, and it provides some comfort knowing that La-Z-Boy has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
Our Take On La-Z-Boy's ROCE
The main thing to remember is that La-Z-Boy has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 5.7% over the last five years, we'd suspect the market is beginning to recognize these trends. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for La-Z-Boy (of which 1 doesn't sit too well with us!) that you should know about.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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