Returns On Capital Are A Standout For Reckitt Benckiser Group (LON:RKT)
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Reckitt Benckiser Group's (LON:RKT) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Reckitt Benckiser Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.21 = UK£3.3b ÷ (UK£25b - UK£8.8b) (Based on the trailing twelve months to June 2025).
So, Reckitt Benckiser Group has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Household Products industry average of 14%.
View 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.
How Are Returns Trending?
You'd find it hard not to be impressed with the ROCE trend at Reckitt Benckiser Group. The data shows that returns on capital have increased by 63% over the trailing five years. The company is now earning UK£0.2 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 41% less than it was five years ago, which can be indicative of a business that's improving its efficiency. 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.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 36% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.
In Conclusion...
From what we've seen above, Reckitt Benckiser Group has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has only returned 5.3% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
Like most companies, Reckitt Benckiser Group does come with some risks, and we've found 3 warning signs that you should be aware of.
Reckitt Benckiser Group is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.