Returns On Capital Signal Tricky Times Ahead For Federal-Mogul Goetze (India) (NSE:FMGOETZE)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Federal-Mogul Goetze (India) (NSE:FMGOETZE) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Federal-Mogul Goetze (India) is:

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

0.13 = ₹1.4b ÷ (₹15b - ₹3.9b) (Based on the trailing twelve months to June 2023).

So, Federal-Mogul Goetze (India) has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Auto Components industry average of 14%.

Check out our latest analysis for Federal-Mogul Goetze (India)

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 want to delve into the historical earnings, revenue and cash flow of Federal-Mogul Goetze (India), check out these free graphs here.

What Does the ROCE Trend For Federal-Mogul Goetze (India) Tell Us?

In terms of Federal-Mogul Goetze (India)'s historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 18%, but since then they've fallen to 13%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line

While returns have fallen for Federal-Mogul Goetze (India) in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These trends don't appear to have influenced returns though, because the total return from the stock has been mostly flat over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Federal-Mogul Goetze (India) could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

While Federal-Mogul Goetze (India) 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.