If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over BIEM.L.FDLKK GarmentLtd's (SZSE:002832) trend of ROCE, we really liked what we saw.
What Is 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. Analysts use this formula to calculate it for BIEM.L.FDLKK GarmentLtd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = CN¥966m ÷ (CN¥6.1b - CN¥1.2b) (Based on the trailing twelve months to September 2023).
Therefore, BIEM.L.FDLKK GarmentLtd has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Luxury industry average of 5.0%.
Above you can see how the current ROCE for BIEM.L.FDLKK GarmentLtd 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 BIEM.L.FDLKK GarmentLtd here for free.
What Does the ROCE Trend For BIEM.L.FDLKK GarmentLtd Tell Us?
In terms of BIEM.L.FDLKK GarmentLtd's history of ROCE, it's quite impressive. The company has consistently earned 20% for the last five years, and the capital employed within the business has risen 218% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If BIEM.L.FDLKK GarmentLtd can keep this up, we'd be very optimistic about its future.
Our Take On BIEM.L.FDLKK GarmentLtd's ROCE
BIEM.L.FDLKK GarmentLtd has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 164% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.
BIEM.L.FDLKK GarmentLtd does have some risks, we noticed 2 warning signs (and 1 which is a bit concerning) we think you should know about.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.