Returns On Capital Are Showing Encouraging Signs At Foncière Euris (EPA:EURS)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Foncière Euris (EPA:EURS) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Foncière Euris:

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

0.073 = €1.5b ÷ (€32b - €12b) (Based on the trailing twelve months to June 2021).

Therefore, Foncière Euris has an ROCE of 7.3%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 9.4%.

Check out our latest analysis for Foncière Euris

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're interested in investigating Foncière Euris' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Foncière Euris' ROCE Trending?

Foncière Euris has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 174%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Foncière Euris appears to been achieving more with less, since the business is using 23% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Key Takeaway

From what we've seen above, Foncière Euris has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 60% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 1 warning sign for Foncière Euris that we think you should be aware of.

While Foncière Euris 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.
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