Returns On Capital Are Showing Encouraging Signs At Westlife Foodworld (NSE:WESTLIFE)

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in Westlife Foodworld's (NSE:WESTLIFE) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Westlife Foodworld is:

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

0.07 = ₹1.3b ÷ (₹24b - ₹5.3b) (Based on the trailing twelve months to September 2024).

So, Westlife Foodworld has an ROCE of 7.0%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.7%.

See 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 .

What Does the ROCE Trend For Westlife Foodworld Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.0%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 36%. 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.

What We Can Learn From Westlife Foodworld's ROCE

In summary, it's great to see that Westlife Foodworld can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 48% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Westlife Foodworld does have some risks, we noticed 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.