Les Vérandas 4 Saisons (EPA:MLV4S) Is Experiencing Growth In Returns On Capital

Simply Wall St
March 23, 2022
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Les Vérandas 4 Saisons (EPA:MLV4S) and its trend of ROCE, 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. To calculate this metric for Les Vérandas 4 Saisons, this is the formula:

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

0.006 = €82k ÷ (€14m - €479k) (Based on the trailing twelve months to December 2020).

So, Les Vérandas 4 Saisons has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Building industry average of 5.9%.

Check out our latest analysis for Les Vérandas 4 Saisons

ENXTPA:MLV4S Return on Capital Employed March 23rd 2022

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're interested in investigating Les Vérandas 4 Saisons' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 0.6%. The amount of capital employed has increased too, by 21%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Les Vérandas 4 Saisons has decreased current liabilities to 3.4% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

In summary, it's great to see that Les Vérandas 4 Saisons can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 287% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Les Vérandas 4 Saisons can keep these trends up, it could have a bright future ahead.

On a final note, we found 5 warning signs for Les Vérandas 4 Saisons (1 doesn't sit too well with us) you should be aware of.

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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