If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Although, when we looked at Wolverine World Wide (NYSE:WWW), it didn't seem to tick all of these boxes.

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What Is 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. Analysts use this formula to calculate it for Wolverine World Wide:

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

0.092 = US$104m ÷ (US$1.7b - US$533m) (Based on the trailing twelve months to December 2024).

So, Wolverine World Wide has an ROCE of 9.2%. Ultimately, that's a low return and it under-performs the Luxury industry average of 13%.

See our latest analysis for Wolverine World Wide

Above you can see how the current ROCE for Wolverine World Wide 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 Wolverine World Wide for free.

What Does the ROCE Trend For Wolverine World Wide Tell Us?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 33% in that same period. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. In addition to that, since the ROCE doesn't scream "quality" at 9.2%, it's hard to get excited about these developments.

The Key Takeaway

In summary, Wolverine World Wide isn't reinvesting funds back into the business and returns aren't growing. Since the stock has declined 24% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

On a final note, we found 2 warning signs for Wolverine World Wide (1 doesn't sit too well with us) you should be aware of.

While Wolverine World Wide may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.