Shareholders Would Enjoy A Repeat Of Vedant Fashions' (NSE:MANYAVAR) Recent Growth In Returns

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at the ROCE trend of Vedant Fashions (NSE:MANYAVAR) we really liked what we saw.

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. To calculate this metric for Vedant Fashions, this is the formula:

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

0.37 = ₹5.4b ÷ (₹18b - ₹3.7b) (Based on the trailing twelve months to December 2022).

Thus, Vedant Fashions has an ROCE of 37%. In absolute terms that's a great return and it's even better than the Luxury industry average of 12%.

Check out our latest analysis for Vedant Fashions

In the above chart we have measured Vedant Fashions' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Vedant Fashions is displaying some positive trends. The data shows that returns on capital have increased substantially over the last four years to 37%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 63%. So we're very much inspired by what we're seeing at Vedant Fashions thanks to its ability to profitably reinvest capital.

Our Take On Vedant Fashions' ROCE

To sum it up, Vedant Fashions has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 17% return over the last year. Therefore, we think it would be worth your time to check if these trends are going to continue.

Vedant Fashions does have some risks though, and we've spotted 1 warning sign for Vedant Fashions that you might be interested in.

Vedant Fashions is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.