Investors Will Want Lulu Retail Holdings' (ADX:LULU) Growth In ROCE To Persist

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Speaking of which, we noticed some great changes in Lulu Retail Holdings' (ADX:LULU) returns on capital, so let's have a look.

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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 Lulu Retail Holdings is:

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

0.15 = US$430m ÷ (US$5.3b - US$2.4b) (Based on the trailing twelve months to September 2025).

Therefore, Lulu Retail Holdings has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Consumer Retailing industry average of 14%.

Check out our latest analysis for Lulu Retail Holdings

Above you can see how the current ROCE for Lulu Retail Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Lulu Retail Holdings .

What Can We Tell From Lulu Retail Holdings' ROCE Trend?

Lulu Retail Holdings has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last three years have risen by 172%. The company is now earning US$0.1 per dollar of capital employed. In regards to capital employed, Lulu Retail Holdings appears to been achieving more with less, since the business is using 43% less capital to run its operation. Lulu Retail Holdings may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a separate but related note, it's important to know that Lulu Retail Holdings has a current liabilities to total assets ratio of 45%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Lulu Retail Holdings' ROCE

In a nutshell, we're pleased to see that Lulu Retail Holdings has been able to generate higher returns from less capital. Given the stock has declined 36% in the last year, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing to note, we've identified 1 warning sign with Lulu Retail Holdings and understanding this should be part of your investment process.

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.

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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.