Société Fermière du Casino Municipal de Cannes' (EPA:FCMC) Returns On Capital Not Reflecting Well On The Business

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Having said that, from a first glance at Société Fermière du Casino Municipal de Cannes (EPA:FCMC) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Société Fermière du Casino Municipal de Cannes, this is the formula:

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

0.011 = €4.5m ÷ (€466m - €77m) (Based on the trailing twelve months to October 2021).

Thus, Société Fermière du Casino Municipal de Cannes has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 4.7%.

Check out our latest analysis for Société Fermière du Casino Municipal de Cannes

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

What Does the ROCE Trend For Société Fermière du Casino Municipal de Cannes Tell Us?

When we looked at the ROCE trend at Société Fermière du Casino Municipal de Cannes, we didn't gain much confidence. To be more specific, ROCE has fallen from 7.7% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

In summary, despite lower returns in the short term, we're encouraged to see that Société Fermière du Casino Municipal de Cannes is reinvesting for growth and has higher sales as a result. These trends don't appear to have influenced returns though, because the total return from the stock has been mostly flat over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Société Fermière du Casino Municipal de Cannes does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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.