Returns On Capital At Faze Three (NSE:FAZE3Q) Have Hit The Brakes

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Faze Three's (NSE:FAZE3Q) ROCE trend, we were pretty happy with what we saw.

We've discovered 2 warning signs about Faze Three. View them for free.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Faze Three:

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

0.14 = ₹573m ÷ (₹6.2b - ₹2.1b) (Based on the trailing twelve months to December 2024).

Thus, Faze Three has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 10% generated by the Consumer Durables industry.

View our latest analysis for Faze Three

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 Faze Three's past further, check out this free graph covering Faze Three's past earnings, revenue and cash flow.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 98% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Faze Three 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.

In Conclusion...

To sum it up, Faze Three has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 33% to shareholders over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a final note, we've found 2 warning signs for Faze Three that we think you should be aware of.

While Faze Three 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.