Return Trends At FIH group (LON:FIH) Aren't Appealing
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think FIH group (LON:FIH) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
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. To calculate this metric for FIH group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.056 = UK£3.8m ÷ (UK£81m - UK£12m) (Based on the trailing twelve months to September 2023).
Therefore, FIH group has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 10%.
View our latest analysis for FIH group
In the above chart we have measured FIH group'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 FIH group here for free.
What The Trend Of ROCE Can Tell Us
In terms of FIH group's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 5.6% for the last five years, and the capital employed within the business has risen 24% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
In Conclusion...
As we've seen above, FIH group's returns on capital haven't increased but it is reinvesting in the business. And investors appear hesitant that the trends will pick up because the stock has fallen 23% in the last five years. Therefore based on the analysis done in this article, we don't think FIH group has the makings of a multi-bagger.
If you'd like to know about the risks facing FIH group, we've discovered 4 warning signs that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.
