Here's What To Make Of Compagnie Générale des Établissements Michelin Société en commandite par actions' (EPA:ML) Decelerating Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Compagnie Générale des Établissements Michelin Société en commandite par actions:

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

0.11 = €2.9b ÷ (€35b - €9.0b) (Based on the trailing twelve months to December 2021).

So, Compagnie Générale des Établissements Michelin Société en commandite par actions has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 7.1% it's much better.

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

Above you can see how the current ROCE for Compagnie Générale des Établissements Michelin Société en commandite par actions compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Compagnie Générale des Établissements Michelin Société en commandite par actions here for free.

What Can We Tell From Compagnie Générale des Établissements Michelin Société en commandite par actions' ROCE Trend?

While the returns on capital are good, they haven't moved much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 36% in that time. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

The Bottom Line

In the end, Compagnie Générale des Établissements Michelin Société en commandite par actions has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock has only delivered a 7.5% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

On a final note, we've found 1 warning sign for Compagnie Générale des Établissements Michelin Société en commandite par actions that we think you should be aware of.

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.