Should You Be Impressed By Imprimerie Chirat Société Anonyme's (EPA:MLIMP) Returns on Capital?

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Imprimerie Chirat Société Anonyme (EPA:MLIMP), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Imprimerie Chirat Société Anonyme, this is the formula:

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

0.068 = €885k ÷ (€18m - €5.2m) (Based on the trailing twelve months to September 2019).

So, Imprimerie Chirat Société Anonyme has an ROCE of 6.8%. On its own that's a low return, but compared to the average of 5.7% generated by the Commercial Services industry, it's much better.

See our latest analysis for Imprimerie Chirat Société Anonyme

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 want to delve into the historical earnings, revenue and cash flow of Imprimerie Chirat Société Anonyme, check out these free graphs here.

What Can We Tell From Imprimerie Chirat Société Anonyme's ROCE Trend?

The returns on capital haven't changed much for Imprimerie Chirat Société Anonyme in recent years. The company has employed 56% more capital in the last five years, and the returns on that capital have remained stable at 6.8%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In summary, Imprimerie Chirat Société Anonyme has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has gained an impressive 86% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Imprimerie Chirat Société Anonyme (of which 2 make us uncomfortable!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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