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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of BIEM.L.FDLKK GarmentLtd (SZSE:002832) looks decent, right now, so lets see what the trend of returns can tell us.
Understanding Return On Capital Employed (ROCE)
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. The formula for this calculation on BIEM.L.FDLKK GarmentLtd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = CN¥930m ÷ (CN¥6.7b - CN¥1.4b) (Based on the trailing twelve months to September 2024).
Thus, BIEM.L.FDLKK GarmentLtd has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 6.5% generated by the Luxury industry.
Above you can see how the current ROCE for BIEM.L.FDLKK GarmentLtd 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 BIEM.L.FDLKK GarmentLtd .
What Does the ROCE Trend For BIEM.L.FDLKK GarmentLtd Tell Us?
While the returns on capital are good, they haven't moved much. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 181% in that time. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Bottom Line On BIEM.L.FDLKK GarmentLtd's ROCE
The main thing to remember is that BIEM.L.FDLKK GarmentLtd has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 63% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
One more thing, we've spotted 1 warning sign facing BIEM.L.FDLKK GarmentLtd that you might find interesting.
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.