SVP Global Textiles (NSE:SVPGLOB) May Have Issues Allocating Its Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. 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 SVP Global Textiles (NSE:SVPGLOB) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 SVP Global Textiles is:

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

0.051 = ₹1.3b ÷ (₹38b - ₹12b) (Based on the trailing twelve months to June 2022).

Therefore, SVP Global Textiles has an ROCE of 5.1%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 14%.

Check out the opportunities and risks within the IN Luxury industry.

Historical performance is a great place to start when researching a stock so above you can see the gauge for SVP Global Textiles' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of SVP Global Textiles, check out these free graphs here.

The Trend Of ROCE

In terms of SVP Global Textiles' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 6.8% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

To conclude, we've found that SVP Global Textiles is reinvesting in the business, but returns have been falling. Moreover, since the stock has crumbled 73% over the last year, it appears investors are expecting the worst. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

SVP Global Textiles does have some risks, we noticed 3 warning signs (and 2 which don't sit too well with us) we think you should know about.

While SVP Global Textiles 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.