AS Silvano Fashion Group (TAL:SFG1T) Hasn't Managed To Accelerate Its Returns

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Looking at AS Silvano Fashion Group (TAL:SFG1T), it does have a high ROCE right now, but lets see how returns are trending.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for AS Silvano Fashion Group, this is the formula:

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

0.31 = €11m ÷ (€42m - €8.8m) (Based on the trailing twelve months to December 2020).

So, AS Silvano Fashion Group has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

See our latest analysis for AS Silvano Fashion Group

Above you can see how the current ROCE for AS Silvano Fashion Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AS Silvano Fashion Group.

What The Trend Of ROCE Can Tell Us

Over the past five years, AS Silvano Fashion Group's ROCE has remained relatively flat while the business is using 24% less capital than before. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. However, the business's operational efficiency is still impressive considering the ROCE is high in absolute terms.

In Conclusion...

In summary, AS Silvano Fashion Group isn't reinvesting funds back into the business and returns aren't growing. Although the market must be expecting these trends to improve because the stock has gained 48% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Like most companies, AS Silvano Fashion Group does come with some risks, and we've found 2 warning signs that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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This article by Simply Wall St is general in nature. 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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