The Returns At M2i Société anonyme (EPA:ALMII) Aren't Growing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at M2i Société anonyme (EPA:ALMII) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for M2i Société anonyme, this is the formula:

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

0.082 = €2.5m ÷ (€48m - €18m) (Based on the trailing twelve months to June 2022).

Thus, M2i Société anonyme has an ROCE of 8.2%. In absolute terms, that's a low return and it also under-performs the Consumer Services industry average of 11%.

Check out our latest analysis for M2i Société anonyme

Above you can see how the current ROCE for M2i Société anonyme compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering M2i Société anonyme here for free.

How Are Returns Trending?

The returns on capital haven't changed much for M2i Société anonyme in recent years. The company has employed 111% more capital in the last five years, and the returns on that capital have remained stable at 8.2%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From M2i Société anonyme's ROCE

Long story short, while M2i Société anonyme has been reinvesting its capital, the returns that it's generating haven't increased. And in the last five years, the stock has given away 43% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Like most companies, M2i Société anonyme does come with some risks, and we've found 3 warning signs that you should be aware of.

While M2i Société anonyme may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.