What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Reckitt Benckiser Group (LON:RKT) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Reckitt Benckiser Group is:

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

0.17 = UK£3.2b ÷ (UK£26b - UK£7.0b) (Based on the trailing twelve months to June 2024).

So, Reckitt Benckiser Group has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Household Products industry average of 14% it's much better.

Check out our latest analysis for Reckitt Benckiser Group

In the above chart we have measured Reckitt Benckiser Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Reckitt Benckiser Group for free.

What The Trend Of ROCE Can Tell Us

We're pretty happy with how the ROCE has been trending at Reckitt Benckiser Group. The figures show that over the last five years, returns on capital have grown by 42%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Reckitt Benckiser Group appears to been achieving more with less, since the business is using 35% less capital to run its operation. Reckitt Benckiser Group may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On Reckitt Benckiser Group's ROCE

In a nutshell, we're pleased to see that Reckitt Benckiser Group has been able to generate higher returns from less capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.