Shareholders Would Enjoy A Repeat Of S.A. Fountaine Pajot's (EPA:ALFPC) Recent Growth In Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in S.A. Fountaine Pajot's (EPA:ALFPC) returns on capital, so let's have a look.

We've discovered 2 warning signs about S.A. Fountaine Pajot. View them for free.

What Is 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. Analysts use this formula to calculate it for S.A. Fountaine Pajot:

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

0.34 = €51m ÷ (€306m - €159m) (Based on the trailing twelve months to August 2024).

So, S.A. Fountaine Pajot has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Leisure industry average of 10%.

See our latest analysis for S.A. Fountaine Pajot

Above you can see how the current ROCE for S.A. Fountaine Pajot compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for S.A. Fountaine Pajot .

The Trend Of ROCE

The trends we've noticed at S.A. Fountaine Pajot are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 34%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 39%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 52% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

The Bottom Line On S.A. Fountaine Pajot's ROCE

To sum it up, S.A. Fountaine Pajot has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 130% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

S.A. Fountaine Pajot does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.