Swaraj Suiting's (NSE:SWARAJ) Returns Have Hit A Wall

There are a few key trends to look for if we want to identify the next multi-bagger. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Swaraj Suiting's (NSE:SWARAJ) ROCE trend, we were pretty happy with what we saw.

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. To calculate this metric for Swaraj Suiting, this is the formula:

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

0.15 = ₹393m ÷ (₹4.4b - ₹1.8b) (Based on the trailing twelve months to September 2024).

So, Swaraj Suiting has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 12% it's much better.

View our latest analysis for Swaraj Suiting

Historical performance is a great place to start when researching a stock so above you can see the gauge for Swaraj Suiting's ROCE against it's prior returns. If you're interested in investigating Swaraj Suiting's past further, check out this free graph covering Swaraj Suiting's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 15% and the business has deployed 335% more capital into its operations. 15% is a pretty standard return, and it provides some comfort knowing that Swaraj Suiting has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

To sum it up, Swaraj Suiting has simply been reinvesting capital steadily, at those decent rates of return. However, over the last year, the stock has only delivered a 0.5% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Swaraj Suiting (of which 2 make us uncomfortable!) that you should know about.

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.