Returns On Capital Signal Tricky Times Ahead For Piscines Desjoyaux (EPA:ALPDX)

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. 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. In light of that, when we looked at Piscines Desjoyaux (EPA:ALPDX) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Piscines Desjoyaux is:

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

0.10 = €15m ÷ (€174m - €28m) (Based on the trailing twelve months to August 2024).

Thus, Piscines Desjoyaux has an ROCE of 10%. In isolation, that's a pretty standard return but against the Leisure industry average of 14%, it's not as good.

Check out our latest analysis for Piscines Desjoyaux

Historical performance is a great place to start when researching a stock so above you can see the gauge for Piscines Desjoyaux's ROCE against it's prior returns. If you're interested in investigating Piscines Desjoyaux's past further, check out this free graph covering Piscines Desjoyaux's past earnings, revenue and cash flow.

So How Is Piscines Desjoyaux's ROCE Trending?

In terms of Piscines Desjoyaux's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 19% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Key Takeaway

In summary, we're somewhat concerned by Piscines Desjoyaux's diminishing returns on increasing amounts of capital. However the stock has delivered a 79% return to shareholders over the last five years, so investors might be expecting the trends to turn around. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Piscines Desjoyaux does have some risks though, and we've spotted 1 warning sign for Piscines Desjoyaux that you might be interested in.

While Piscines Desjoyaux isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.