Returns On Capital At Filatex Fashions (NSE:FILATFASH) Paint A Concerning Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. However, after investigating Filatex Fashions (NSE:FILATFASH), we don't think it's current trends fit the mold of a multi-bagger.

Our free stock report includes 1 warning sign investors should be aware of before investing in Filatex Fashions. Read for free now.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Filatex Fashions, this is the formula:

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

0.005 = ₹119m ÷ (₹25b - ₹1.1b) (Based on the trailing twelve months to December 2024).

Therefore, Filatex Fashions has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Luxury industry average of 12%.

View our latest analysis for Filatex Fashions

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

What Does the ROCE Trend For Filatex Fashions Tell Us?

In terms of Filatex Fashions' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 0.7% over the last five years. 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.

What We Can Learn From Filatex Fashions' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Filatex Fashions. Despite these promising trends, the stock has collapsed 82% over the last year, so there could be other factors hurting the company's prospects. Therefore, we'd suggest researching the stock further to uncover more about the business.

Like most companies, Filatex Fashions does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.