Returns on Capital Paint A Bright Future For Groupe OKwind Société anonyme (EPA:ALOKW)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Groupe OKwind Société anonyme (EPA:ALOKW) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Groupe OKwind Société anonyme is:

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

0.20 = €10m ÷ (€85m - €33m) (Based on the trailing twelve months to December 2023).

Thus, Groupe OKwind Société anonyme has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Electrical industry average of 13%.

See our latest analysis for Groupe OKwind Société anonyme

In the above chart we have measured Groupe OKwind Société anonyme's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Groupe OKwind Société anonyme .

What Can We Tell From Groupe OKwind Société anonyme's ROCE Trend?

We like the trends that we're seeing from Groupe OKwind Société anonyme. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 20%. Basically the business is earning more per dollar of capital invested and in addition to that, 183% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 38% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line On Groupe OKwind Société anonyme's ROCE

To sum it up, Groupe OKwind Société anonyme has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 47% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching Groupe OKwind Société anonyme, you might be interested to know about the 2 warning signs that our analysis has discovered.

Groupe OKwind Société anonyme is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com