Capital Investments At La Française des Jeux Société anonyme (EPA:FDJ) Point To A Promising Future

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over La Française des Jeux Société anonyme's (EPA:FDJ) trend of ROCE, we really liked what we saw.

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 La Française des Jeux Société anonyme, this is the formula:

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

0.31 = €399m ÷ (€2.6b - €1.3b) (Based on the trailing twelve months to June 2021).

So, La Française des Jeux Société anonyme has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 5.3% earned by companies in a similar industry.

See our latest analysis for La Française des Jeux Société anonyme

In the above chart we have measured La Française des Jeux Société anonyme's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

We'd be pretty happy with returns on capital like La Française des Jeux Société anonyme. Over the past five years, ROCE has remained relatively flat at around 31% and the business has deployed 56% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

Another thing to note, La Française des Jeux Société anonyme has a high ratio of current liabilities to total assets of 51%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On La Française des Jeux Société anonyme's ROCE

In summary, we're delighted to see that La Française des Jeux Société anonyme has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. In light of this, the stock has only gained 1.5% over the last year for shareholders who have owned the stock in this period. So to determine if La Française des Jeux Société anonyme is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

La Française des Jeux Société anonyme does have some risks though, and we've spotted 2 warning signs for La Française des Jeux Société anonyme that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.