Swaraj Suiting (NSE:SWARAJ) Hasn't Managed To Accelerate Its Returns

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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 Swaraj Suiting (NSE:SWARAJ) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Swaraj Suiting is:

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

0.072 = ₹89m ÷ (₹2.0b - ₹740m) (Based on the trailing twelve months to September 2022).

So, Swaraj Suiting has an ROCE of 7.2%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 12%.

View our latest analysis for Swaraj Suiting

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Swaraj Suiting, check out these free graphs here.

How Are Returns Trending?

In terms of Swaraj Suiting's historical ROCE trend, it doesn't exactly demand attention. The company has employed 105% more capital in the last four years, and the returns on that capital have remained stable at 7.2%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Swaraj Suiting's ROCE

In conclusion, Swaraj Suiting has been investing more capital into the business, but returns on that capital haven't increased. And in the last year, the stock has given away 11% 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.

Like most companies, Swaraj Suiting does come with some risks, and we've found 4 warning signs that you should be aware of.

While Swaraj Suiting isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.