Piscines Desjoyaux (EPA:ALPDX) Is Investing Its Capital With Increasing Efficiency
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. 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 Piscines Desjoyaux's (EPA:ALPDX) returns on capital, so let's have a look.
What is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Piscines Desjoyaux is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = €21m ÷ (€121m - €32m) (Based on the trailing twelve months to August 2020).
Thus, Piscines Desjoyaux has an ROCE of 23%. In absolute terms that's a very respectable return and compared to the Leisure industry average of 19% it's pretty much on par.
Check out our latest analysis for Piscines Desjoyaux
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'd like to look at how Piscines Desjoyaux has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
So How Is Piscines Desjoyaux's ROCE Trending?
Piscines Desjoyaux is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 341% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
In Conclusion...
In summary, we're delighted to see that Piscines Desjoyaux has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 296% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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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About ENXTPA:ALPDX
Piscines Desjoyaux
Designs, manufactures, and markets swimming pools and related products in France and internationally.
Excellent balance sheet established dividend payer.