What We Make Of Foncière Euris' (EPA:EURS) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Foncière Euris' (EPA:EURS) 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. 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)

0.074 = €1.5b ÷ (€32b - €12b) (Based on the trailing twelve months to June 2020).

Therefore, Foncière Euris has an ROCE of 7.4%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 9.4%.

See 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.

What Does the ROCE Trend For Foncière Euris Tell Us?

You'd find it hard not to be impressed with the ROCE trend at Foncière Euris. The figures show that over the last five years, returns on capital have grown by 27%. The company is now earning €0.07 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 27% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line

In summary, it's great to see that Foncière Euris has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has dived 70% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals 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.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

If you’re looking to trade Foncière Euris, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.