Yahoo Finance Columbia Sportswear's (NASDAQ:COLM) Returns On Capital Not Reflecting Well On The Business
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Having said that, from a first glance at Columbia Sportswear (NASDAQ:COLM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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. Analysts use this formula to calculate it for Columbia Sportswear:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = US$335m ÷ (US$2.9b - US$597m) (Based on the trailing twelve months to December 2023).
Thus, Columbia Sportswear has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 12% generated by the Luxury industry.
Check out our latest analysis for Columbia Sportswear
Above you can see how the current ROCE for Columbia Sportswear 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 Columbia Sportswear for free.
The Trend Of ROCE
On the surface, the trend of ROCE at Columbia Sportswear doesn't inspire confidence. Around five years ago the returns on capital were 20%, but since then they've fallen to 14%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
The Key Takeaway
To conclude, we've found that Columbia Sportswear is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 18% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
If you're still interested in Columbia Sportswear it's worth checking out our FREE intrinsic value approximation for COLM to see if it's trading at an attractive price in other respects.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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.
