Investors Met With Slowing Returns on Capital At Westlife Foodworld (NSE:WESTLIFE)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Westlife Foodworld (NSE:WESTLIFE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

We've discovered 2 warning signs about Westlife Foodworld. View them for free.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Westlife Foodworld:

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

0.065 = ₹1.2b ÷ (₹24b - ₹5.3b) (Based on the trailing twelve months to December 2024).

Thus, Westlife Foodworld has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.1%.

View our latest analysis for Westlife Foodworld

In the above chart we have measured Westlife Foodworld's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Westlife Foodworld .

So How Is Westlife Foodworld's ROCE Trending?

In terms of Westlife Foodworld's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 6.5% for the last five years, and the capital employed within the business has risen 36% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In summary, Westlife Foodworld has simply been reinvesting capital and generating the same low rate of return as before. Yet to long term shareholders the stock has gifted them an incredible 130% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we found 2 warning signs for Westlife Foodworld (1 can't be ignored) you should be aware of.

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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.