Returns At iFabric (TSE:IFA) Are On The Way Up

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, iFabric (TSE:IFA) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for iFabric, this is the formula:

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

0.036 = CA$795k ÷ (CA$26m - CA$3.2m) (Based on the trailing twelve months to March 2024).

Therefore, iFabric has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 13%.

Check out 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'd like to look at how iFabric has performed in the past in other metrics, you can view this free graph of iFabric's past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that iFabric is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 3.6% on its capital. And unsurprisingly, like most companies trying to break into the black, iFabric is utilizing 91% 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.

The Bottom Line On iFabric's ROCE

In summary, it's great to see that iFabric has managed to break into profitability and is continuing to reinvest in its business. Considering the stock has delivered 26% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

If you want to continue researching iFabric, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.

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