Investors Met With Slowing Returns on Capital At Kinepolis Group (EBR:KIN)

There are a few key trends to look for if we want to identify the next 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Kinepolis Group (EBR:KIN), it didn't seem to tick all of these boxes.

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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. Analysts use this formula to calculate it for Kinepolis Group:

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

0.096 = €83m ÷ (€1.1b - €287m) (Based on the trailing twelve months to December 2024).

So, Kinepolis Group has an ROCE of 9.6%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 13%.

Check out our latest analysis for Kinepolis Group

In the above chart we have measured Kinepolis Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Kinepolis Group .

So How Is Kinepolis Group's ROCE Trending?

Over the past five years, Kinepolis Group's ROCE has remained relatively flat while the business is using 22% less capital than before. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 25% of total assets, this reported ROCE would probably be less than9.6% because total capital employed would be higher.The 9.6% ROCE could be even lower if current liabilities weren't 25% of total assets, because the the formula would show a larger base of total capital employed. With that in mind, just be wary if this ratio increases in the future, because if it gets particularly high, this brings with it some new elements of risk.

In Conclusion...

In summary, Kinepolis Group isn't reinvesting funds back into the business and returns aren't growing. Unsurprisingly, the stock has only gained 1.9% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to continue researching Kinepolis Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Kinepolis 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.

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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.