The Returns At Compagnie Générale des Établissements Michelin Société en commandite par actions (EPA:ML) Aren't Growing

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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.

Understanding 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 Compagnie Générale des Établissements Michelin Société en commandite par actions, this is the formula:

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

0.13 = €3.5b ÷ (€35b - €9.0b) (Based on the trailing twelve months to June 2023).

So, Compagnie Générale des Établissements Michelin Société en commandite par actions has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 8.2% it's much better.

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'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.

How Are Returns Trending?

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 13% and the business has deployed 34% more capital into its operations. 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. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

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. And the stock has followed suit returning a meaningful 53% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing to note, we've identified 1 warning sign with Compagnie Générale des Établissements Michelin Société en commandite par actions and understanding this should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.