Investors Will Want NSC Groupe's (EPA:ALNSC) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, NSC Groupe (EPA:ALNSC) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for NSC Groupe:

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

0.089 = €4.8m ÷ (€75m - €22m) (Based on the trailing twelve months to June 2024).

Thus, NSC Groupe has an ROCE of 8.9%. On its own, that's a low figure but it's around the 9.8% average generated by the Machinery industry.

See our latest analysis for NSC Groupe

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

How Are Returns Trending?

We're pretty happy with how the ROCE has been trending at NSC Groupe. The data shows that returns on capital have increased by 37% over the trailing five years. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, NSC Groupe appears to been achieving more with less, since the business is using 23% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Key Takeaway

In the end, NSC Groupe has proven it's capital allocation skills are good with those higher returns from less amount of capital. Astute investors may have an opportunity here because the stock has declined 26% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

NSC Groupe does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

While NSC Groupe 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.