There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Watches of Switzerland Group (LON:WOSG) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.14 = UK￡152m ÷ (UK￡1.3b - UK￡274m) (Based on the trailing twelve months to April 2024).

Thus, Watches of Switzerland Group has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.9% generated by the Specialty Retail industry.

View 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're interested, you can view the analysts predictions in our free analyst report for Watches of Switzerland Group .

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 208% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Watches of Switzerland Group 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.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 21% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Watches of Switzerland Group's ROCE

To sum it up, Watches of Switzerland Group has simply been reinvesting capital steadily, at those decent rates of return. And given the stock has only risen 26% over the last five years, we'd suspect the market is beginning to recognize these trends. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.