Investors Will Want FSN E-Commerce Ventures' (NSE:NYKAA) Growth In ROCE To Persist

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. With that in mind, we've noticed some promising trends at FSN E-Commerce Ventures (NSE:NYKAA) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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 FSN E-Commerce Ventures, this is the formula:

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

0.09 = ₹1.4b ÷ (₹34b - ₹19b) (Based on the trailing twelve months to June 2024).

Therefore, FSN E-Commerce Ventures has an ROCE of 9.0%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 17%.

Check out our latest analysis for FSN E-Commerce Ventures

Above you can see how the current ROCE for FSN E-Commerce Ventures 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 FSN E-Commerce Ventures .

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

The fact that FSN E-Commerce Ventures is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 9.0% on its capital. And unsurprisingly, like most companies trying to break into the black, FSN E-Commerce Ventures is utilizing 391% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a separate but related note, it's important to know that FSN E-Commerce Ventures has a current liabilities to total assets ratio of 55%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

Overall, FSN E-Commerce Ventures gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a solid 47% to shareholders over the last year, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if FSN E-Commerce Ventures can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing FSN E-Commerce Ventures that you might find interesting.

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.