You may not have known that certain financial indicators can help you identify a possible multibagger. We’d love to see companies investing in their business more and earning higher returns. This shows that the business is investing profits with increasing returns. From a quick glance, it appears that the business is reinvesting profits at increasing rates of return. Kitex Garments We aren’t super excited about the returns trend for (NSE:KITEX), but we’ll take a closer look.
What Is the Return on Capital Employed (ROCE), and how does it work?
To those that don’t yet know ROCE, it is the ratio of the annual profit before taxes (or return) of an enterprise to its capital. For Kitex Garments to calculate ROCE, here is the formula.
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.012 = ₹121m ÷ (₹11b – ₹914m) The following twelve month period is used to calculate the current year’s rate..
Thus, Kitex Garments ROCE is 1.2%. This is a very low rate of return, and also below the Luxury Industry average (10%).
Kitex Garments – Check our Latest Analysis
This chart is a good way to see how Kitex Garments has done historically. You can learn more about Kitex Garments by checking out this chart. Free Graph of historical earnings, revenues and cash flows.
What Is the Trend in Returns?
Kitex Garments’ ROCE trend doesn’t look promising. Around five years back, the return on capital was 21%. Now it’s only 1.2%. It’s a little concerning that the business has increased capital expenditure, but revenue is down. The business could lose its market share because it is investing more in new ventures and getting a smaller return.
The Bottom Line
In the analysis we have done, it is alarming that Kitex Garments has seen a decline in returns on its capital, and yet the business employs more capital now than they did five years earlier. Investors must have been expecting some sort of improvement because the stock returned a decent 68% over the past five years. The fundamentals are not very good, and we recommend that you avoid this stock.
We’ll end with a note. Kitex Garments: 2 Warning Signs We think that you need to be informed about the following.
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