Understanding Your Return On Investment In Cesar SA (EPA:ALCES)

The content of this article will benefit those of you who are starting to educate yourself about investing in the stock market and want to better understand how you can grow your money by investing in Cesar SA (ENXTPA:ALCES).

Cesar stock represents an ownership share in the company. As a result, your investment is being put to work to fund operations and if you want to earn an attractive return on your investment, the business needs to be making an adequate amount of money from the funds you provide. You need to pay attention to this because your return on investment is linked to dividends and internal investments to improve the business, which can only occur if the company is expected to produce adequate earnings with the capital that has been provided. Therefore, looking at how efficiently Cesar is able to use capital to create earnings will help us understand your potential return. Investors use many different metrics but the analysis below focuses on return on capital employed (ROCE). Let’s take a look at what it can tell us.

View our latest analysis for Cesar

Cesar’s Return On Capital Employed

When you choose to invest in a company, there is an opportunity cost because that money could’ve been invested elsewhere. Accordingly, before you invest you need to assess the capital returns that the company has produced with reference to a certain benchmark to ensure that you are confident in the business’ ability to grow your investment at a level that grants an investment over other companies. To determine Cesar’s capital return we will use ROCE, which tells us how much the company makes from the capital employed in their operations (for things like machinery, wages etc) ALCES’s ROCE is calculated below:

ROCE Calculation for ALCES

Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)

Capital Employed = (Total Assets – Current Liabilities)

∴ ROCE = €16.00K ÷ (€5.62M – €2.74M) = 0.56%

ALCES’s 0.56% ROCE means that for every €100 you invest, the company creates €0.6. This shows Cesar provides an unsatisfying capital return that is well below the 15% ROCE that is typically considered to be a strong benchmark. Nevertheless, if ALCES is clever with their reinvestments or dividend payments, investors can still grow their capital although to a poor extent.

ENXTPA:ALCES Last Perf Mar 29th 18
ENXTPA:ALCES Last Perf Mar 29th 18

Why is this the case?

ALCES doesn’t return an attractive amount on capital, but this will only continue if the company is unable to increase earnings or decrease current capital requirements. Because of this, it is important to look beyond the final value of ALCES’s ROCE and understand what is happening to the individual components. Three years ago, ALCES’s ROCE was -16.81%, which means the company’s capital returns have improved. We can see that earnings have increased from -€741.00K to €16.00K whilst capital employed has also decreased due to a fall in total assets , which means the company has been able to improve ROCE by growing earnings and simultaneously putting less capital to work.

Next Steps

Despite Cesar’s current ROCE remains at an attractive level, the company has triggered an upward trend over the recent past which could be a signal of an improving company. Because return on capital employed is a static metric, you should be looking at it in conjunction with other fundamental indicators like the management team and valuation to determine if an opportunity exists that isn’t made apparent by looking at past data. If you’re building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate ALCES or move on to other alternatives.

  • 1. Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Cesar’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
  • 2. Valuation: What is ALCES worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ALCES is currently mispriced by the market.
  • 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.