Investors Could Be Concerned With Société BIC's (EPA:BB) Returns On Capital

When researching a stock for investment, what can tell us that the company is in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. Having said that, after a brief look, Société BIC (EPA:BB) we aren't filled with optimism, but let's investigate further.

Understanding 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. Analysts use this formula to calculate it for Société BIC:

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

0.13 = €229m ÷ (€2.2b - €463m) (Based on the trailing twelve months to December 2020).

Thus, Société BIC has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 5.2% generated by the Commercial Services industry.

Check out our latest analysis for Société BIC

Above you can see how the current ROCE for Société BIC 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 Société BIC here for free.

What Does the ROCE Trend For Société BIC Tell Us?

The trend of returns that Société BIC is generating are raising some concerns. To be more specific, today's ROCE was 19% five years ago but has since fallen to 13%. In addition to that, Société BIC is now employing 21% less capital than it was five years ago. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. If these underlying trends continue, we wouldn't be too optimistic going forward.

What We Can Learn From Société BIC's ROCE

To see Société BIC reducing the capital employed in the business in tandem with diminishing returns, is concerning. It should come as no surprise then that the stock has fallen 41% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a separate note, we've found 3 warning signs for Société BIC you'll probably want to know about.

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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.
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