Vedant Fashions (NSE:MANYAVAR) Is Aiming To Keep Up Its Impressive Returns

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Ergo, when we looked at the ROCE trends at Vedant Fashions (NSE:MANYAVAR), we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Vedant Fashions, this is the formula:

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

0.30 = ₹5.3b ÷ (₹21b - ₹3.3b) (Based on the trailing twelve months to December 2023).

Thus, Vedant Fashions has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

See 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'd like, you can check out the forecasts from the analysts covering Vedant Fashions for free.

What Can We Tell From Vedant Fashions' ROCE Trend?

In terms of Vedant Fashions' history of ROCE, it's quite impressive. Over the past five years, ROCE has remained relatively flat at around 30% and the business has deployed 98% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

What We Can Learn From Vedant Fashions' ROCE

In summary, we're delighted to see that Vedant Fashions has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. Yet over the last year the stock has declined 14%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

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

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.