Returns Are Gaining Momentum 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? 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. So when we looked at Westlife Foodworld (NSE:WESTLIFE) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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)

0.094 = ₹1.5b ÷ (₹23b - ₹6.4b) (Based on the trailing twelve months to June 2024).

Therefore, Westlife Foodworld has an ROCE of 9.4%. On its own, that's a low figure but it's around the 10% average generated by the Hospitality industry.

Check out our latest analysis for Westlife Foodworld

Above you can see how the current ROCE for Westlife Foodworld compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Westlife Foodworld .

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.4%. The amount of capital employed has increased too, by 164%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a related note, the company's ratio of current liabilities to total assets has decreased to 28%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Westlife Foodworld has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Westlife Foodworld's ROCE

To sum it up, Westlife Foodworld has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 184% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Westlife Foodworld we've found 3 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While Westlife Foodworld 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.