FSN E-Commerce Ventures (NSE:NYKAA) Has Some Way To Go To Become A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at FSN E-Commerce Ventures (NSE:NYKAA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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 FSN E-Commerce Ventures, this is the formula:

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

0.042 = ₹778m ÷ (₹29b - ₹10b) (Based on the trailing twelve months to December 2022).

Therefore, FSN E-Commerce Ventures has an ROCE of 4.2%. On its own that's a low return on capital but it's in line with the industry's average returns of 3.8%.

View our latest analysis for FSN E-Commerce Ventures

In the above chart we have measured FSN E-Commerce Ventures' 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 report on analyst forecasts for the company.

What Does the ROCE Trend For FSN E-Commerce Ventures Tell Us?

The returns on capital haven't changed much for FSN E-Commerce Ventures in recent years. The company has consistently earned 4.2% for the last three years, and the capital employed within the business has risen 380% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

One more thing to note, even though ROCE has remained relatively flat over the last three years, the reduction in current liabilities to 36% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From FSN E-Commerce Ventures' ROCE

In summary, FSN E-Commerce Ventures has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 43% over the last year, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Like most companies, FSN E-Commerce Ventures does come with some risks, and we've found 2 warning signs that you should be aware of.

While FSN E-Commerce Ventures may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.