The Returns At FY Group (TWSE:6807) Aren't Growing

Simply Wall St · 4d ago

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of FY Group (TWSE:6807) looks decent, right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on FY Group is:

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

0.17 = NT$429m ÷ (NT$3.7b - NT$1.2b) (Based on the trailing twelve months to September 2024).

So, FY Group has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 10% it's much better.

View our latest analysis for FY Group

roce
TWSE:6807 Return on Capital Employed March 11th 2025

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of FY Group.

So How Is FY Group's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 97% more capital in the last four years, and the returns on that capital have remained stable at 17%. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, FY Group has done well to reduce current liabilities to 32% of total assets over the last four years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

To sum it up, FY Group has simply been reinvesting capital steadily, at those decent rates of return. And long term investors would be thrilled with the 105% return they've received over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you're still interested in FY Group it's worth checking out our FREE intrinsic value approximation for 6807 to see if it's trading at an attractive price in other respects.

While FY Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.