Yahoo Finance Watches of Switzerland Group (LON:WOSG) Shareholders Will Want The ROCE Trajectory To Continue
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Watches of Switzerland Group (LON:WOSG) and its trend of ROCE, we really liked what we saw.
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. The formula for this calculation on Watches of Switzerland Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = UK£167m ÷ (UK£1.3b - UK£302m) (Based on the trailing twelve months to October 2023).
So, Watches of Switzerland Group has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 14% generated by the Specialty Retail industry.
Check out our latest analysis for Watches of Switzerland Group
In the above chart we have measured Watches of Switzerland Group's 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 analyst report for Watches of Switzerland Group .
So How Is Watches of Switzerland Group's ROCE Trending?
Watches of Switzerland Group is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 180%. So we're very much inspired by what we're seeing at Watches of Switzerland Group thanks to its ability to profitably reinvest capital.
Our Take On Watches of Switzerland Group's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Watches of Switzerland Group has. Astute investors may have an opportunity here because the stock has declined 50% in the last three years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
On a separate note, we've found 1 warning sign for Watches of Switzerland Group you'll probably want to know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
