Slowing Rates Of Return At Foncière Euris (EPA:EURS) Leave Little Room For Excitement

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Foncière Euris (EPA:EURS), it didn't seem to tick all of these boxes.

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

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. To calculate this metric for Foncière Euris, this is the formula:

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

0.03 = €594m ÷ (€32b - €12b) (Based on the trailing twelve months to December 2020).

Thus, Foncière Euris has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 8.2%.

View our latest analysis for Foncière Euris

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

What The Trend Of ROCE Can Tell Us

Over the past five years, Foncière Euris' ROCE has remained relatively flat while the business is using 22% less capital than before. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. In addition to that, since the ROCE doesn't scream "quality" at 3.0%, it's hard to get excited about these developments.

What We Can Learn From Foncière Euris' ROCE

It's a shame to see that Foncière Euris is effectively shrinking in terms of its capital base. And in the last five years, the stock has given away 66% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Foncière Euris, we've discovered 1 warning sign that 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. 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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