We Like These Underlying Return On Capital Trends At Compagnie de Saint-Gobain (EPA:SGO)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Compagnie de Saint-Gobain's (EPA:SGO) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Compagnie de Saint-Gobain, this is the formula:

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

0.12 = €4.2b ÷ (€52b - €15b) (Based on the trailing twelve months to December 2021).

So, Compagnie de Saint-Gobain has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 7.3% generated by the Building industry.

Check out our latest analysis for Compagnie de Saint-Gobain

In the above chart we have measured Compagnie de Saint-Gobain's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Compagnie de Saint-Gobain.

So How Is Compagnie de Saint-Gobain's ROCE Trending?

Compagnie de Saint-Gobain's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 35% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Compagnie de Saint-Gobain's ROCE

To bring it all together, Compagnie de Saint-Gobain has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 21% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you want to continue researching Compagnie de Saint-Gobain, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Compagnie de Saint-Gobain isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.