Should We Be Excited About The Trends Of Returns At Alkis H. Hadjikyriacos (Frou Frou Biscuits) (CSE:FBI)?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after briefly looking over the numbers, we don't think Alkis H. Hadjikyriacos (Frou Frou Biscuits) (CSE:FBI) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Alkis H. Hadjikyriacos (Frou Frou Biscuits), this is the formula:

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

0.024 = €1.7m ÷ (€80m - €9.3m) (Based on the trailing twelve months to June 2020).

Therefore, Alkis H. Hadjikyriacos (Frou Frou Biscuits) has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Food industry average of 9.6%.

View our latest analysis for Alkis H. Hadjikyriacos (Frou Frou Biscuits)

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're interested in investigating Alkis H. Hadjikyriacos (Frou Frou Biscuits)'s past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Alkis H. Hadjikyriacos (Frou Frou Biscuits) Tell Us?

On the surface, the trend of ROCE at Alkis H. Hadjikyriacos (Frou Frou Biscuits) doesn't inspire confidence. To be more specific, ROCE has fallen from 5.2% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

In summary, Alkis H. Hadjikyriacos (Frou Frou Biscuits) is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly, the stock has only gained 40% 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.

On a final note, we found 2 warning signs for Alkis H. Hadjikyriacos (Frou Frou Biscuits) (1 can't be ignored) you should be aware of.

While Alkis H. Hadjikyriacos (Frou Frou Biscuits) 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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This article by Simply Wall St is general in nature. 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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