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Crown Crafts (NASDAQ:CRWS) Is Aiming To Keep Up Its Impressive Returns

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Crown Crafts (NASDAQ:CRWS) looks attractive right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What Is It?

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 Crown Crafts is:

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

0.21 = US$11m ÷ (US$61m - US$11m) (Based on the trailing twelve months to October 2022).

So, Crown Crafts has an ROCE of 21%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

Check out our latest analysis for Crown Crafts


Historical performance is a great place to start when researching a stock so above you can see the gauge for Crown Crafts' ROCE against it's prior returns. If you're interested in investigating Crown Crafts' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Crown Crafts Tell Us?

Crown Crafts deserves to be commended in regards to it's returns. The company has employed 28% more capital in the last five years, and the returns on that capital have remained stable at 21%. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Crown Crafts can keep this up, we'd be very optimistic about its future.

What We Can Learn From Crown Crafts' ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. In light of this, the stock has only gained 33% over the last five years for shareholders who have owned the stock in this period. So to determine if Crown Crafts is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

On a separate note, we've found 2 warning signs for Crown Crafts you'll probably want to know about.

Crown Crafts is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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.

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