We Like These Underlying Return On Capital Trends At BOA Concept SAS (EPA:ALBOA)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 when we looked at BOA Concept SAS (EPA:ALBOA) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. 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)

0.15 = €3.0m ÷ (€23m - €2.7m) (Based on the trailing twelve months to June 2023).

Thus, BOA Concept SAS has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 6.8% it's much better.

See our latest analysis for BOA Concept SAS

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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.

What The Trend Of ROCE Can Tell Us

The fact that BOA Concept SAS is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses four years ago, but now it's earning 15% which is a sight for sore eyes. In addition to that, BOA Concept SAS is employing 772% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 12%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that BOA Concept SAS has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On BOA Concept SAS' ROCE

Overall, BOA Concept SAS gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 27% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing to note, we've identified 1 warning sign with BOA Concept SAS and understanding it should be part of your investment process.

While BOA Concept SAS may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.