Finatis Société Anonyme (EPA:FNTS) Will Be Hoping To Turn Its Returns On Capital Around

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within Finatis Société Anonyme (EPA:FNTS), we weren't too hopeful.

Understanding 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. The formula for this calculation on Finatis Société Anonyme is:

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

0.03 = €592m ÷ (€32b - €12b) (Based on the trailing twelve months to December 2020).

So, Finatis Société Anonyme 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%.

See our latest analysis for Finatis Société Anonyme

Historical performance is a great place to start when researching a stock so above you can see the gauge for Finatis Société Anonyme's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Finatis Société Anonyme, check out these free graphs here.

How Are Returns Trending?

The trend of ROCE at Finatis Société Anonyme is showing some signs of weakness. The company used to generate 4.8% on its capital five years ago but it has since fallen noticeably. What's equally concerning is that the amount of capital deployed in the business has shrunk by 22% over that same period. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. If these underlying trends continue, we wouldn't be too optimistic going forward.

Our Take On Finatis Société Anonyme's ROCE

In summary, it's unfortunate that Finatis Société Anonyme is shrinking its capital base and also generating lower returns. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to know some of the risks facing Finatis Société Anonyme we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

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.

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