Here's What To Make Of Fabryki Mebli FORTE's (WSE:FTE) Decelerating Rates Of Return

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Fabryki Mebli FORTE (WSE:FTE) 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)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Fabryki Mebli FORTE is:

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

0.12 = zł141m ÷ (zł1.5b - zł339m) (Based on the trailing twelve months to June 2022).

Thus, Fabryki Mebli FORTE has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 14% generated by the Consumer Durables industry.

Check out our latest analysis for Fabryki Mebli FORTE

Above you can see how the current ROCE for Fabryki Mebli FORTE compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Fabryki Mebli FORTE here for free.

How Are Returns Trending?

Over the past five years, Fabryki Mebli FORTE's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Fabryki Mebli FORTE in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. With fewer investment opportunities, it makes sense that Fabryki Mebli FORTE has been paying out a decent 38% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

What We Can Learn From Fabryki Mebli FORTE's ROCE

We can conclude that in regards to Fabryki Mebli FORTE's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 67% over the last five years, 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.

One more thing: We've identified 4 warning signs with Fabryki Mebli FORTE (at least 2 which shouldn't be ignored) , and understanding these would certainly be useful.

While Fabryki Mebli FORTE 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.