Slowing Rates Of Return At Fiducial Office Solutions (EPA:SACI) Leave Little Room For Excitement

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Fiducial Office Solutions (EPA:SACI), it didn't seem to tick all of these boxes.

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

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. The formula for this calculation on Fiducial Office Solutions is:

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

0.025 = €2.0m ÷ (€135m - €55m) (Based on the trailing twelve months to September 2020).

So, Fiducial Office Solutions has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 5.7%.

View our latest analysis for Fiducial Office Solutions

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fiducial Office Solutions' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Fiducial Office Solutions, check out these free graphs here.

So How Is Fiducial Office Solutions' ROCE Trending?

Things have been pretty stable at Fiducial Office Solutions, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Fiducial Office Solutions in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Another thing to note, Fiducial Office Solutions has a high ratio of current liabilities to total assets of 41%. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

In summary, Fiducial Office Solutions isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 13% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Fiducial Office Solutions does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is significant...

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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