How Good Is Bénéteau S.A. (EPA:BEN) At Creating Shareholder Value?

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Today we’ll evaluate Bénéteau S.A. (EPA:BEN) to determine whether it could have potential as an investment idea. Specifically, we’re going to calculate its Return On Capital Employed (ROCE), in the hopes of getting some insight into the business.

Firstly, we’ll go over how we calculate ROCE. Then we’ll compare its ROCE to similar companies. Last but not least, we’ll look at what impact its current liabilities have on its ROCE.

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

ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Generally speaking a higher ROCE is better. Ultimately, it is a useful but imperfect metric. Renowned investment researcher Michael Mauboussin has suggested that a high ROCE can indicate that ‘one dollar invested in the company generates value of more than one dollar’.

So, How Do We Calculate ROCE?

Analysts use this formula to calculate return on capital employed:

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

Or for Bénéteau:

0.13 = €88m ÷ (€1.1b – €413m) (Based on the trailing twelve months to August 2018.)

Therefore, Bénéteau has an ROCE of 13%.

See our latest analysis for Bénéteau

Does Bénéteau Have A Good ROCE?

One way to assess ROCE is to compare similar companies. We can see Bénéteau’s ROCE is around the 11% average reported by the Leisure industry. Regardless of where Bénéteau sits next to its industry, its ROCE in absolute terms appears satisfactory, and this company could be worth a closer look.

As we can see, Bénéteau currently has an ROCE of 13% compared to its ROCE 3 years ago, which was 5.4%. This makes us wonder if the company is improving.

ENXTPA:BEN Past Revenue and Net Income, April 29th 2019
ENXTPA:BEN Past Revenue and Net Income, April 29th 2019

When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. ROCE can be misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. ROCE is only a point-in-time measure. Since the future is so important for investors, you should check out our free report on analyst forecasts for Bénéteau.

How Bénéteau’s Current Liabilities Impact Its ROCE

Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To counter this, investors can check if a company has high current liabilities relative to total assets.

Bénéteau has total assets of €1.1b and current liabilities of €413m. As a result, its current liabilities are equal to approximately 37% of its total assets. With this level of current liabilities, Bénéteau’s ROCE is boosted somewhat.

Our Take On Bénéteau’s ROCE

Bénéteau’s ROCE does look good, but the level of current liabilities also contribute to that. There might be better investments than Bénéteau out there, but you will have to work hard to find them . These promising businesses with rapidly growing earnings might be right up your alley.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.