Stock Analysis

Mare Nostrum Société anonyme (EPA:ALMAR) Is Reinvesting At Lower Rates Of Return

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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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Mare Nostrum Société anonyme (EPA:ALMAR) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Mare Nostrum Société anonyme:

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

0.039 = €1.2m ÷ (€84m - €53m) (Based on the trailing twelve months to June 2022).

So, Mare Nostrum Société anonyme has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 11%.

View our latest analysis for Mare Nostrum Société anonyme

ENXTPA:ALMAR Return on Capital Employed March 16th 2023

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 Mare Nostrum Société anonyme's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Mare Nostrum Société anonyme's ROCE Trend?

When we looked at the ROCE trend at Mare Nostrum Société anonyme, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 3.9% from 44% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Mare Nostrum Société anonyme has done well to pay down its current liabilities to 63% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money. Either way, they're still at a pretty high level, so we'd like to see them fall further if possible.

What We Can Learn From Mare Nostrum Société anonyme's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Mare Nostrum Société anonyme is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 24% in the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you want to know some of the risks facing Mare Nostrum Société anonyme we've found 3 warning signs (2 are potentially serious!) that you should be aware of before investing here.

While Mare Nostrum Société anonyme 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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Find out whether Mare Nostrum Société anonyme is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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