Capri Holdings (NYSE:CPRI) Will Want To Turn Around Its Return Trends

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. Although, when we looked at Capri Holdings (NYSE:CPRI), it didn’t seem to tick all of these boxes.

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 Capri Holdings, this is the formula:

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

0.17 = US$1.0b ÷ (US$7.2b – US$1.3b) (Based on the trailing twelve months to October 2022).

Therefore, Capri Holdings has an ROCE of 17%. By itself that’s a normal return on capital and it’s in line with the industry’s average returns of 17%.

See our latest analysis for Capri Holdings

Above you can see how the current ROCE for Capri Holdings compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like, you can check out the forecasts from the analysts covering Capri Holdings here for free.

The Trend Of ROCE

In terms of Capri Holdings’ historical ROCE movements, the trend isn’t…