Relaxo Footwears' (NSE:RELAXO) Returns On Capital Not Reflecting Well On The Business

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Relaxo Footwears (NSE:RELAXO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Relaxo Footwears is:

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

0.097 = ₹2.2b ÷ (₹28b - ₹4.5b) (Based on the trailing twelve months to March 2025).

Therefore, Relaxo Footwears has an ROCE of 9.7%. Even though it's in line with the industry average of 9.7%, it's still a low return by itself.

Check out our latest analysis for Relaxo Footwears

In the above chart we have measured Relaxo Footwears' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Relaxo Footwears .

What Does the ROCE Trend For Relaxo Footwears Tell Us?

On the surface, the trend of ROCE at Relaxo Footwears doesn't inspire confidence. Over the last five years, returns on capital have decreased to 9.7% from 21% five years ago. However it looks like Relaxo Footwears might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Relaxo Footwears' reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 33% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Relaxo Footwears could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for RELAXO on our platform quite valuable.

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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.