Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, the ROCE of Fiem Industries (NSE:FIEMIND) looks decent, right now, so lets see what the trend of returns can tell us.
What is 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. Analysts use this formula to calculate it for Fiem Industries:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = ₹1.3b ÷ (₹9.3b - ₹2.7b) (Based on the trailing twelve months to December 2021).
Therefore, Fiem Industries has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 11% it's much better.
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Fiem Industries' past further, check out this free graph of past earnings, revenue and cash flow.
So How Is Fiem Industries' ROCE Trending?
While the returns on capital are good, they haven't moved much. The company has consistently earned 19% for the last five years, and the capital employed within the business has risen 37% in that time. 19% is a pretty standard return, and it provides some comfort knowing that Fiem Industries has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
What We Can Learn From Fiem Industries' ROCE
To sum it up, Fiem Industries has simply been reinvesting capital steadily, at those decent rates of return. In light of this, the stock has only gained 31% over the last five years for shareholders who have owned the stock in this period. So to determine if Fiem Industries is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
One more thing, we've spotted 1 warning sign facing Fiem Industries that you might find interesting.
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.
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