Investors Will Want BOA Concept SAS' (EPA:ALBOA) Growth In ROCE To Persist

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, BOA Concept SAS (EPA:ALBOA) looks quite promising in regards to its trends of return on capital.

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 BOA Concept SAS, this is the formula:

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

0.077 = €1.4m ÷ (€22m - €3.9m) (Based on the trailing twelve months to December 2023).

Therefore, BOA Concept SAS has an ROCE of 7.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.4%.

View our latest analysis for BOA Concept SAS

Historical performance is a great place to start when researching a stock so above you can see the gauge for BOA Concept SAS' ROCE against it's prior returns. If you'd like to look at how BOA Concept SAS has performed in the past in other metrics, you can view this free graph of BOA Concept SAS' past earnings, revenue and cash flow.

The Trend Of ROCE

BOA Concept SAS has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 7.7% on its capital. And unsurprisingly, like most companies trying to break into the black, BOA Concept SAS is utilizing 506% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 18%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On BOA Concept SAS' ROCE

Long story short, we're delighted to see that BOA Concept SAS' reinvestment activities have paid off and the company is now profitable. Investors may not be impressed by the favorable underlying trends yet because over the last three years the stock has only returned 3.0% to shareholders. So with that in mind, we think the stock deserves further research.

BOA Concept SAS does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit concerning...

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.