Compagnie Générale des Établissements Michelin Société en commandite par actions' (EPA:ML) Returns Have Hit A Wall

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. That's why when we briefly looked at Compagnie Générale des Établissements Michelin Société en commandite par actions' (EPA:ML) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on Compagnie Générale des Établissements Michelin Société en commandite par actions is:

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

0.13 = €3.4b ÷ (€35b - €9.0b) (Based on the trailing twelve months to December 2022).

Thus, Compagnie Générale des Établissements Michelin Société en commandite par actions has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 6.9% generated by the Auto Components industry.

Check out our latest analysis for Compagnie Générale des Établissements Michelin Société en commandite par actions

In the above chart we have measured Compagnie Générale des Établissements Michelin Société en commandite par actions' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 36% in that time. 13% is a pretty standard return, and it provides some comfort knowing that Compagnie Générale des Établissements Michelin Société en commandite par actions has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Compagnie Générale des Établissements Michelin Société en commandite par actions' ROCE

The main thing to remember is that Compagnie Générale des Établissements Michelin Société en commandite par actions has proven its ability to continually reinvest at respectable rates of return. However, over the last five years, the stock has only delivered a 21% return to shareholders who held over that period. So to determine if Compagnie Générale des Établissements Michelin Société en commandite par actions is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you'd like to know about the risks facing Compagnie Générale des Établissements Michelin Société en commandite par actions, we've discovered 1 warning sign that you should be aware of.

While Compagnie Générale des Établissements Michelin Société en commandite par actions 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. 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.