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There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of La-Z-Boy (NYSE:LZB) looks decent, right now, so lets see what the trend of returns can tell us.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for La-Z-Boy, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = US$157m ÷ (US$2.0b - US$456m) (Based on the trailing twelve months to January 2025).
Therefore, La-Z-Boy has an ROCE of 10%. In absolute terms, that's a pretty standard return but compared to the Consumer Durables industry average it falls behind.
View our latest analysis for La-Z-Boy
In the above chart we have measured La-Z-Boy's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for La-Z-Boy .
How Are Returns Trending?
While the returns on capital are good, they haven't moved much. The company has employed 35% more capital in the last five years, and the returns on that capital have remained stable at 10%. Since 10% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.
What We Can Learn From La-Z-Boy's ROCE
To sum it up, La-Z-Boy has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 115% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
If you want to continue researching La-Z-Boy, you might be interested to know about the 1 warning sign that our analysis has discovered.