The Returns At Société de Services de Participations de Direction et d'Elaboration (EBR:SPA) Provide Us With Signs Of What's To Come

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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. To calculate this metric for Société de Services de Participations de Direction et d'Elaboration, this is the formula:

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).

So, Société de Services de Participations de Direction et d'Elaboration has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Beverage industry average of 9.0% it's much better.

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

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'd like to look at how Société de Services de Participations de Direction et d'Elaboration has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

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. However it looks like Société de Services de Participations de Direction et d'Elaboration might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

To conclude, we've found that Société de Services de Participations de Direction et d'Elaboration is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 87% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 2 warning signs for Société de Services de Participations de Direction et d'Elaboration you'll probably want to know about.

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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