Fiberweb (India) (NSE:FIBERWEB) Will Be Looking To Turn Around Its Returns

When researching a stock for investment, what can tell us that the company is in decline? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after we looked into Fiberweb (India) (NSE:FIBERWEB), the trends above didn't look too great.

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. To calculate this metric for Fiberweb (India), this is the formula:

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

0.046 = ₹75m ÷ (₹1.7b - ₹99m) (Based on the trailing twelve months to March 2024).

Thus, Fiberweb (India) has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 10%.

See our latest analysis for Fiberweb (India)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fiberweb (India)'s ROCE against it's prior returns. If you'd like to look at how Fiberweb (India) has performed in the past in other metrics, you can view this free graph of Fiberweb (India)'s past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Fiberweb (India)'s historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 16% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Fiberweb (India) to turn into a multi-bagger.

The Bottom Line On Fiberweb (India)'s ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. However the stock has delivered a 81% return to shareholders over the last year, so investors might be expecting the trends to turn around. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Fiberweb (India) (of which 2 are significant!) that you should know about.

While Fiberweb (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.

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