Returns On Capital At Apex Frozen Foods (NSE:APEX) Paint A Concerning Picture

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Apex Frozen Foods (NSE:APEX) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

We've discovered 3 warning signs about Apex Frozen Foods. View them for free.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Apex Frozen Foods, this is the formula:

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

0.016 = ₹80m ÷ (₹6.5b - ₹1.4b) (Based on the trailing twelve months to December 2024).

Thus, Apex Frozen Foods has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Food industry average of 13%.

See our latest analysis for Apex Frozen Foods

Above you can see how the current ROCE for Apex Frozen Foods compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Apex Frozen Foods .

So How Is Apex Frozen Foods' ROCE Trending?

When we looked at the ROCE trend at Apex Frozen Foods, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 1.6% from 19% five years ago. However it looks like Apex Frozen Foods might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Apex Frozen Foods has done well to pay down its current liabilities to 22% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line

To conclude, we've found that Apex Frozen Foods is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 29% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Apex Frozen Foods does have some risks though, and we've spotted 3 warning signs for Apex Frozen Foods that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.