Returns On Capital At FIH group (LON:FIH) Have Stalled

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. 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. However, after briefly looking over the numbers, we don't think FIH group (LON:FIH) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for FIH group, this is the formula:

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

0.056 = UK£3.8m ÷ (UK£81m - UK£12m) (Based on the trailing twelve months to September 2023).

Thus, FIH group has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 8.9%.

Check out our latest analysis for FIH group

In the above chart we have measured FIH group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for FIH group .

What Can We Tell From FIH group's ROCE Trend?

The returns on capital haven't changed much for FIH group in recent years. The company has consistently earned 5.6% for the last five years, and the capital employed within the business has risen 24% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In conclusion, FIH group has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 32% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think FIH group has the makings of a multi-bagger.

FIH group does have some risks though, and we've spotted 4 warning signs for FIH group that you might be interested in.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com