Yahoo Finance The Returns On Capital At Levi Strauss (NYSE:LEVI) Don't Inspire Confidence
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Although, when we looked at Levi Strauss (NYSE:LEVI), it didn't seem to tick all of these boxes.
What Is 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 Levi Strauss, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$554m ÷ (US$6.2b - US$1.9b) (Based on the trailing twelve months to May 2024).
So, Levi Strauss has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.
See our latest analysis for Levi Strauss
Above you can see how the current ROCE for Levi Strauss compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Levi Strauss .
How Are Returns Trending?
When we looked at the ROCE trend at Levi Strauss, we didn't gain much confidence. Around five years ago the returns on capital were 20%, but since then they've fallen to 13%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Key Takeaway
To conclude, we've found that Levi Strauss is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 3.6% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
On a separate note, we've found 3 warning signs for Levi Strauss you'll probably want to know about.
While Levi Strauss isn't earning the highest return, check out this free list of companies that are 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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