Here's What To Make Of Société de Services de Participations de Direction et d'Elaboration's (EBR:SPA) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Société de Services de Participations de Direction et d'Elaboration (EBR:SPA) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. Analysts use this formula to calculate it for Société de Services de Participations de Direction et d'Elaboration:

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

0.12 = €31m ÷ (€385m - €125m) (Based on the trailing twelve months to June 2020).

Therefore, Société de Services de Participations de Direction et d'Elaboration has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Beverage industry.

See our latest analysis for Société de Services de Participations de Direction et d'Elaboration

Historical performance is a great place to start when researching a stock so above you can see the gauge for Société de Services de Participations de Direction et d'Elaboration's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Société de Services de Participations de Direction et d'Elaboration, check out these free graphs here.

So How Is Société de Services de Participations de Direction et d'Elaboration's ROCE Trending?

In terms of Société de Services de Participations de Direction et d'Elaboration's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 16% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

In summary, Société de Services de Participations de Direction et d'Elaboration is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 85% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 1 warning sign facing Société de Services de Participations de Direction et d'Elaboration that you might find interesting.

While Société de Services de Participations de Direction et d'Elaboration isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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