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

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 briefly looking over the numbers, we don't think Fsilon Furnishing and Construction Materials (SHSE:605318) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Fsilon Furnishing and Construction Materials, this is the formula:

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

0.015 = CN¥12m ÷ (CN¥1.1b - CN¥293m) (Based on the trailing twelve months to September 2024).

Therefore, Fsilon Furnishing and Construction Materials has an ROCE of 1.5%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 9.6%.

Check out our latest analysis for Fsilon Furnishing and Construction Materials

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fsilon Furnishing and Construction Materials' ROCE against it's prior returns. 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 Can We Tell From Fsilon Furnishing and Construction Materials' ROCE Trend?

On the surface, the trend of ROCE at Fsilon Furnishing and Construction Materials doesn't inspire confidence. To be more specific, ROCE has fallen from 20% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, Fsilon Furnishing and Construction Materials is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Although the market must be expecting these trends to improve because the stock has gained 78% over the last three years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Like most companies, Fsilon Furnishing and Construction Materials does come with some risks, and we've found 2 warning signs that you should be aware of.

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.