We Like These Underlying Return On Capital Trends At eDreams ODIGEO (BME:EDR)

There are a few key trends to look for if we want to identify the next 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at eDreams ODIGEO (BME:EDR) and its trend of ROCE, we really liked what we saw.

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What Is 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. The formula for this calculation on eDreams ODIGEO is:

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

0.11 = €68m ÷ (€1.2b - €535m) (Based on the trailing twelve months to March 2025).

Therefore, eDreams ODIGEO has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Hospitality industry average it falls behind.

View our latest analysis for eDreams ODIGEO

In the above chart we have measured eDreams ODIGEO'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 eDreams ODIGEO for free.

What Does the ROCE Trend For eDreams ODIGEO Tell Us?

We're pretty happy with how the ROCE has been trending at eDreams ODIGEO. The figures show that over the last five years, returns on capital have grown by 42%. The company is now earning €0.1 per dollar of capital employed. In regards to capital employed, eDreams ODIGEO appears to been achieving more with less, since the business is using 31% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 46% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

Our Take On eDreams ODIGEO's ROCE

From what we've seen above, eDreams ODIGEO has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has returned a staggering 320% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 2 warning signs with eDreams ODIGEO (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.