Motisons Jewellers' (NSE:MOTISONS) Returns Have Hit A Wall

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Motisons Jewellers' (NSE:MOTISONS) ROCE trend, we were pretty happy with what we saw.

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. Analysts use this formula to calculate it for Motisons Jewellers:

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

0.19 = ₹667m ÷ (₹4.7b - ₹1.2b) (Based on the trailing twelve months to December 2024).

Therefore, Motisons Jewellers has an ROCE of 19%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Specialty Retail industry average of 16%.

Check out our latest analysis for Motisons Jewellers

Historical performance is a great place to start when researching a stock so above you can see the gauge for Motisons Jewellers' ROCE against it's prior returns. If you're interested in investigating Motisons Jewellers' past further, check out this free graph covering Motisons Jewellers' past earnings, revenue and cash flow.

What Does the ROCE Trend For Motisons Jewellers Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 210% more capital in the last five years, and the returns on that capital have remained stable at 19%. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, Motisons Jewellers has done well to reduce current liabilities to 25% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

The Bottom Line

The main thing to remember is that Motisons Jewellers has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 35% to shareholders over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

While Motisons Jewellers doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for MOTISONS on our platform.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.