The Returns On Capital At Fsilon Furnishing and Construction Materials (SHSE:605318) Don't Inspire Confidence

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Fsilon Furnishing and Construction Materials (SHSE:605318), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Fsilon Furnishing and Construction Materials:

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

0.016 = CN¥12m ÷ (CN¥1.1b - CN¥335m) (Based on the trailing twelve months to June 2024).

So, Fsilon Furnishing and Construction Materials has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 8.8%.

See our latest analysis for Fsilon Furnishing and Construction Materials

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Fsilon Furnishing and Construction Materials' past further, check out this free graph covering Fsilon Furnishing and Construction Materials' past earnings, revenue and cash flow.

What Does the ROCE Trend For Fsilon Furnishing and Construction Materials Tell Us?

On the surface, the trend of ROCE at Fsilon Furnishing and Construction Materials doesn't inspire confidence. Around five years ago the returns on capital were 22%, but since then they've fallen to 1.6%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

While returns have fallen for Fsilon Furnishing and Construction Materials in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. Furthermore the stock has climbed 63% over the last three years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

Fsilon Furnishing and Construction Materials does have some risks, we noticed 3 warning signs (and 2 which can't be ignored) we think you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.