Returns On Capital At Go Fashion (India) (NSE:GOCOLORS) Have Stalled

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Go Fashion (India)'s (NSE:GOCOLORS) 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 Go Fashion (India), this is the formula:

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

0.16 = ₹1.3b ÷ (₹9.3b - ₹1.3b) (Based on the trailing twelve months to June 2023).

Thus, Go Fashion (India) has an ROCE of 16%. That's a pretty standard return and it's in line with the industry average of 16%.

Check out our latest analysis for Go Fashion (India)

In the above chart we have measured Go Fashion (India)'s prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Go Fashion (India) here for free.

What Does the ROCE Trend For Go Fashion (India) Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 16% for the last four years, and the capital employed within the business has risen 114% in that time. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

The main thing to remember is that Go Fashion (India) has proven its ability to continually reinvest at respectable rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last year. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Like most companies, Go Fashion (India) does come with some risks, and we've found 1 warning sign that you should be aware of.

While Go Fashion (India) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.