What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So, when we ran our eye over BIEM.L.FDLKK GarmentLtd's (SZSE:002832) trend of ROCE, we liked what we saw.

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 BIEM.L.FDLKK GarmentLtd is:

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

0.19 = CN¥891m ÷ (CN¥5.8b - CN¥1.2b) (Based on the trailing twelve months to June 2023).

Thus, BIEM.L.FDLKK GarmentLtd has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 5.3% generated by the Luxury industry.

See our latest analysis for BIEM.L.FDLKK GarmentLtd

In the above chart we have measured BIEM.L.FDLKK GarmentLtd's 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 BIEM.L.FDLKK GarmentLtd here for free.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has employed 215% 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. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

The main thing to remember is that BIEM.L.FDLKK GarmentLtd has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 250% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

BIEM.L.FDLKK GarmentLtd does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While BIEM.L.FDLKK GarmentLtd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.