If you're looking for a multi-bagger, there's a few things to keep an eye out for.  In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing.  If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities.    Ergo, when we looked at the ROCE trends at Lennox International (NYSE:LII), we liked what we saw.    

Return On Capital Employed (ROCE): What Is It?

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.  The formula for this calculation on Lennox International is:

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

0.43 = US$904m ÷ (US$3.2b - US$1.1b) (Based on the trailing twelve months to June 2024).

So, Lennox International has an ROCE of 43%. In absolute terms that's a great return and it's even better than the Building industry average of 16%.  

NYSE:LII Return on Capital Employed September 1st 2024

In the above chart we have measured Lennox International's prior ROCE against its prior performance, but the future is arguably more important.  If you're interested, you can view the analysts predictions in our free analyst report for Lennox International .

The Trend Of ROCE

In terms of Lennox International's history of ROCE, it's quite impressive.   The company has consistently earned 43% for the last  five years, and the capital employed within the business has risen 67% in that time.   With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return.  If Lennox International can keep this up, we'd be very optimistic about its future.  

One more thing to note, even though ROCE has remained relatively flat over the last  five years, the reduction in current liabilities to 34% of total assets, is good to see from a business owner's perspective.  Effectively suppliers now fund less of the business, which can lower some elements of risk.    

The Bottom Line On Lennox International's ROCE

Lennox International has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about.        And the stock has done incredibly well with a 155% return over the last  five years, so long term investors are no doubt ecstatic with that result.   So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.