Why You Should Care About Industria de Diseño Textil's (BME:ITX) Strong Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Ergo, when we looked at the ROCE trends at Industria de Diseño Textil (BME:ITX), we liked what we saw.

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 Industria de Diseño Textil, this is the formula:

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

0.28 = €6.4b ÷ (€34b - €12b) (Based on the trailing twelve months to October 2023).

Thus, Industria de Diseño Textil has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 11%.

See our latest analysis for Industria de Diseño Textil

In the above chart we have measured Industria de Diseño Textil's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Industria de Diseño Textil.

So How Is Industria de Diseño Textil's ROCE Trending?

It's hard not to be impressed by Industria de Diseño Textil's returns on capital. The company has consistently earned 28% for the last five years, and the capital employed within the business has risen 46% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Industria de Diseño Textil can keep this up, we'd be very optimistic about its future.

The Bottom Line

In short, we'd argue Industria de Diseño Textil has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Therefore it's no surprise that shareholders have earned a respectable 83% return if they held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing, we've spotted 1 warning sign facing Industria de Diseño Textil that you might find interesting.

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. 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.