Returns On Capital Are Showing Encouraging Signs At Felix Industries (NSE:FELIX)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Felix Industries' (NSE:FELIX) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Felix Industries:

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

0.062 = ₹53m ÷ (₹1.1b - ₹221m) (Based on the trailing twelve months to September 2024).

Therefore, Felix Industries has an ROCE of 6.2%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 15%.

Check out our latest analysis for Felix Industries

Historical performance is a great place to start when researching a stock so above you can see the gauge for Felix Industries' ROCE against it's prior returns. If you're interested in investigating Felix Industries' past further, check out this free graph covering Felix Industries' past earnings, revenue and cash flow.

How Are Returns Trending?

The fact that Felix Industries is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 6.2% on its capital. Not only that, but the company is utilizing 1,057% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On Felix Industries' ROCE

In summary, it's great to see that Felix Industries has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 1,012% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we found 5 warning signs for Felix Industries (1 is concerning) you should be aware of.

While Felix Industries isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.