Some Investors May Be Worried About Alkis H. Hadjikyriacos (Frou Frou Biscuits)'s (CSE:FBI) Returns On Capital

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after investigating Alkis H. Hadjikyriacos (Frou Frou Biscuits) (CSE:FBI), 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 Alkis H. Hadjikyriacos (Frou Frou Biscuits):

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

0.026 = €1.9m ÷ (€85m - €8.2m) (Based on the trailing twelve months to June 2021).

Therefore, Alkis H. Hadjikyriacos (Frou Frou Biscuits) has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.2%.

See our latest analysis for Alkis H. Hadjikyriacos (Frou Frou Biscuits)

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

What Can We Tell From Alkis H. Hadjikyriacos (Frou Frou Biscuits)'s ROCE Trend?

On the surface, the trend of ROCE at Alkis H. Hadjikyriacos (Frou Frou Biscuits) doesn't inspire confidence. Around five years ago the returns on capital were 4.7%, but since then they've fallen to 2.6%. 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From Alkis H. Hadjikyriacos (Frou Frou Biscuits)'s ROCE

To conclude, we've found that Alkis H. Hadjikyriacos (Frou Frou Biscuits) is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 77% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Alkis H. Hadjikyriacos (Frou Frou Biscuits) does have some risks, we noticed 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

While Alkis H. Hadjikyriacos (Frou Frou Biscuits) 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.