Investors Should Be Encouraged By La Française des Jeux Société anonyme's (EPA:FDJ) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in La Française des Jeux Société anonyme's (EPA:FDJ) returns on capital, so let's have a 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. Analysts use this formula to calculate it for La Française des Jeux Société anonyme:

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

0.37 = €570m ÷ (€3.4b - €1.9b) (Based on the trailing twelve months to June 2024).

Therefore, La Française des Jeux Société anonyme has an ROCE of 37%. That's a fantastic return and not only that, it outpaces the average of 8.3% earned by companies in a similar industry.

View 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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for La Française des Jeux Société anonyme .

The Trend Of ROCE

La Française des Jeux Société anonyme is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 37%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 71%. So we're very much inspired by what we're seeing at La Française des Jeux Société anonyme thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 55%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance. Nevertheless, there are some potential risks the company is bearing with current liabilities that high, so just keep that in mind.

The Bottom Line

All in all, it's terrific to see that La Française des Jeux Société anonyme is reaping the rewards from prior investments and is growing its capital base. Since the total return from the stock has been almost flat over the last three years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing La Française des Jeux Société anonyme, we've discovered 1 warning sign that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.