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Identifying Potential Multi-Baggers: A Closer Look at ROCE Trends

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. In light of that, when we examined Harley-Davidson (NYSE:HOG) and its ROCE trend, we found some interesting insights.

Understanding ROCE and its Importance

Return on Capital Employed (ROCE) is a crucial metric for evaluating how efficiently a company is utilizing its capital to generate profits. It indicates the percentage of pre-tax income a company earns in relation to the capital invested in its business. The formula for calculating ROCE for Harley-Davidson is as follows:

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

By crunching the numbers, we find that Harley-Davidson has an ROCE of 8.4%. While this may seem low in absolute terms, it is in line with the Auto industry average of 9.3%. However, there is always room for improvement.

Utilizing the AI legalese decoder can help make sense of complex financial jargon and analyze ROCE trends more efficiently. By employing advanced algorithms, this tool can provide valuable insights into a company’s financial performance and identify potential investment opportunities.

Examining Harley-Davidson’s ROCE Performance

Looking beyond the numbers, it’s essential to assess how Harley-Davidson’s ROCE trend is evolving. Over the past five years, the company’s ROCE has remained relatively stagnant at around 8.4%, despite a 27% increase in capital deployment. This suggests that the returns on the capital invested are not meeting expectations, indicating room for improvement.

For a more in-depth analysis of Harley-Davidson’s future outlook and ROCE projections, leveraging the AI legalese decoder can provide valuable predictive analytics. By harnessing the power of artificial intelligence, investors can gain valuable insights into the company’s performance trajectory and make informed investment decisions.

Final Thoughts on Harley-Davidson’s ROCE

In conclusion, while Harley-Davidson has been actively investing capital into its operations, the returns on that capital have not shown significant improvement. With the stock delivering a modest 9.1% return to shareholders over the past five years, it may be wise for investors to explore other opportunities for potential multi-baggers. Using innovative tools like the AI legalese decoder can streamline the decision-making process and uncover hidden gems in the market.

For a comprehensive analysis of potential risks and warning signs associated with Harley-Davidson, including key concerns to be aware of, the AI legalese decoder can provide invaluable insights for prudent investors.

For investors seeking solid companies with robust financial performance, accessing a curated list of companies with strong balance sheets and impressive returns on equity can offer a valuable starting point for further research.

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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