Return Trends At Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) Aren't Appealing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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?

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 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)

0.12 = €3.2b ÷ (€35b - €9.0b) (Based on the trailing twelve months to December 2022).

So, Compagnie Générale des Établissements Michelin Société en commandite par actions has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 7.4% generated by the Auto Components industry.

See 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.

SWOT Analysis for Compagnie Générale des Établissements Michelin Société en commandite par actions

What Does the ROCE Trend For Compagnie Générale des Établissements Michelin Société en commandite par actions Tell Us?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 36% more capital into its operations. Since 12% 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.

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 9.6% 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.

One more thing, we've spotted 1 warning sign facing Compagnie Générale des Établissements Michelin Société en commandite par actions that you might find interesting.

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.