Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (EPA:BAIN) Is Doing The Right Things To Multiply Its Share Price

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. Speaking of which, we noticed some great changes in Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's (EPA:BAIN) returns on capital, so let's have a look.

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 Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco is:

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

0.016 = €15m ÷ (€1.4b - €412m) (Based on the trailing twelve months to September 2021).

Thus, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 3.5%.

See our latest analysis for Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco

Historical performance is a great place to start when researching a stock so above you can see the gauge for Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's ROCE against it's prior returns. If you'd like to look at how Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco's ROCE Trending?

We're delighted to see that Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 1.6% on its capital. While returns have increased, the amount of capital employed by Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 30% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

The Key Takeaway

To sum it up, Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 111% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco can keep these trends up, it could have a bright future ahead.

Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco does have some risks though, and we've spotted 1 warning sign for Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.