Returns On Capital At Unifi (NYSE:UFI) Have Hit The Brakes

Simply Wall St
·2 min read

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. However, after investigating Unifi (NYSE:UFI), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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 Unifi is:

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

0.094 = US$45m ÷ (US$593m - US$114m) (Based on the trailing twelve months to March 2022).

Therefore, Unifi has an ROCE of 9.4%. Ultimately, that's a low return and it under-performs the Luxury industry average of 15%.

See our latest analysis for Unifi

roce
roce

In the above chart we have measured Unifi'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 Unifi here for free.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Unifi, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Unifi to be a multi-bagger going forward.

The Key Takeaway

In summary, Unifi isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors appear hesitant that the trends will pick up because the stock has fallen 54% in the last five years. Therefore based on the analysis done in this article, we don't think Unifi has the makings of a multi-bagger.

On a final note, we've found 1 warning sign for Unifi that we think you should be aware of.

While Unifi isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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