Groupe CRIT (EPA:CEN) Will Be Looking To Turn Around Its Returns

What underlying fundamental trends can indicate that a company might be in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after glancing at the trends within Groupe CRIT (EPA:CEN), we weren't too hopeful.

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. Analysts use this formula to calculate it for Groupe CRIT:

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

0.11 = €92m ÷ (€1.6b - €819m) (Based on the trailing twelve months to June 2024).

Thus, Groupe CRIT has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Professional Services industry.

Check out our latest analysis for Groupe CRIT

In the above chart we have measured Groupe CRIT'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 analyst report for Groupe CRIT .

What Does the ROCE Trend For Groupe CRIT Tell Us?

There is reason to be cautious about Groupe CRIT, given the returns are trending downwards. About five years ago, returns on capital were 18%, 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. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Groupe CRIT becoming one if things continue as they have.

Another thing to note, Groupe CRIT has a high ratio of current liabilities to total assets of 50%. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In summary, it's unfortunate that Groupe CRIT is generating lower returns from the same amount of capital. Investors must expect better things on the horizon though because the stock has risen 14% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

Groupe CRIT could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for CEN on our platform quite valuable.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.