Should We Be Excited About The Trends Of Returns At Groupe CIOA (EPA:MLCIO)?

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Groupe CIOA's (EPA:MLCIO) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Groupe CIOA is:

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

0.19 = €1.7m ÷ (€20m - €11m) (Based on the trailing twelve months to December 2019).

Thus, Groupe CIOA has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 10% generated by the Professional Services industry.

See our latest analysis for Groupe CIOA

Historical performance is a great place to start when researching a stock so above you can see the gauge for Groupe CIOA's ROCE against it's prior returns. If you're interested in investigating Groupe CIOA's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 19% and the business has deployed 115% more capital into its operations. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 55% of total assets, this reported ROCE would probably be less than19% because total capital employed would be higher.The 19% ROCE could be even lower if current liabilities weren't 55% of total assets, because the the formula would show a larger base of total capital employed. Additionally, this high level of current liabilities isn't ideal because it means the company's suppliers (or short-term creditors) are effectively funding a large portion of the business.

What We Can Learn From Groupe CIOA's ROCE

The main thing to remember is that Groupe CIOA has proven its ability to continually reinvest at respectable rates of return. What's surprising though is that the stock has collapsed 94% over the last five years, so there might be other areas of the business hurting its prospects. That's why it's worth looking further into this stock because while these fundamentals look good, there could be other issues with the business.

If you want to know some of the risks facing Groupe CIOA we've found 3 warning signs (1 can't be ignored!) that you should be aware of before investing here.

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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