Returns Are Gaining Momentum At FSN E-Commerce Ventures (NSE:NYKAA)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at FSN E-Commerce Ventures (NSE:NYKAA) so let's look a bit deeper.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Understanding 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. The formula for this calculation on FSN E-Commerce Ventures is:

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

0.11 = ₹1.8b ÷ (₹37b - ₹21b) (Based on the trailing twelve months to December 2024).

Therefore, FSN E-Commerce Ventures has an ROCE of 11%. In isolation, that's a pretty standard return but against the Specialty Retail industry average of 16%, it's not as good.

Check out 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'd like, you can check out the forecasts from the analysts covering FSN E-Commerce Ventures for free.

How Are Returns Trending?

Investors would be pleased with what's happening at FSN E-Commerce Ventures. The data shows that returns on capital have increased substantially over the last five years to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 310% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Another thing to note, FSN E-Commerce Ventures has a high ratio of current liabilities to total assets of 58%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

All in all, it's terrific to see that FSN E-Commerce Ventures is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 12% in the last three years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for FSN E-Commerce Ventures you'll probably want to know about.

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.

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.