Investors Will Want iFabric's (TSE:IFA) Growth In ROCE To Persist

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in iFabric's (TSE:IFA) returns on capital, so let's have a look.

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What Is 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 iFabric is:

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

0.099 = CA$2.1m ÷ (CA$31m - CA$9.0m) (Based on the trailing twelve months to September 2025).

So, iFabric has an ROCE of 9.9%. In absolute terms, that's a low return but it's around the Luxury industry average of 12%.

View our latest analysis for iFabric

Historical performance is a great place to start when researching a stock so above you can see the gauge for iFabric's ROCE against it's prior returns. If you're interested in investigating iFabric's past further, check out this free graph covering iFabric's past earnings, revenue and cash flow.

What Can We Tell From iFabric's ROCE Trend?

We're delighted to see that iFabric is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 9.9% on its capital. And unsurprisingly, like most companies trying to break into the black, iFabric is utilizing 116% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 29%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that iFabric has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On iFabric's ROCE

Overall, iFabric gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 50% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing: We've identified 2 warning signs with iFabric (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

While iFabric 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.