These Metrics Don't Make Exel Industries Société Anonyme (EPA:EXE) Look Too Strong

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. Having said that, after a brief look, Exel Industries Société Anonyme (EPA:EXE) we aren't filled with optimism, but let's investigate further.

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. The formula for this calculation on Exel Industries Société Anonyme is:

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

0.079 = €35m ÷ (€765m - €318m) (Based on the trailing twelve months to September 2020).

Thus, Exel Industries Société Anonyme has an ROCE of 7.9%. On its own that's a low return, but compared to the average of 5.4% generated by the Machinery industry, it's much better.

See our latest analysis for Exel Industries Société Anonyme

Above you can see how the current ROCE for Exel Industries Société Anonyme compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Exel Industries Société Anonyme here for free.

What The Trend Of ROCE Can Tell Us

In terms of Exel Industries Société Anonyme's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 12%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Exel Industries Société Anonyme to turn into a multi-bagger.

On a side note, Exel Industries Société Anonyme's current liabilities are still rather high at 42% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Exel Industries Société Anonyme's ROCE

In summary, it's unfortunate that Exel Industries Société Anonyme is generating lower returns from the same amount of capital. And long term shareholders have watched their investments stay flat over the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Exel Industries Société Anonyme (of which 1 is significant!) that you should know about.

While Exel Industries Société Anonyme 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.

If you decide to trade Exel Industries Société Anonyme, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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