Many Would Be Envious Of La Française des Jeux Société anonyme's (EPA:FDJ) Excellent Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of La Française des Jeux Société anonyme (EPA:FDJ) looks attractive right now, so lets see what the trend of returns can tell us.

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

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. 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)

0.34 = €454m ÷ (€2.9b - €1.6b) (Based on the trailing twelve months to June 2023).

Therefore, La Française des Jeux Société anonyme has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 8.0%.

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.

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by La Française des Jeux Société anonyme's returns on capital. Over the past five years, ROCE has remained relatively flat at around 34% and the business has deployed 55% 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.

On a separate but related note, it's important to know that La Française des Jeux Société anonyme has a current liabilities to total assets ratio of 55%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From 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. However, over the last three years, the stock has only delivered a 16% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you want to continue researching La Française des Jeux Société anonyme, you might be interested to know about the 1 warning sign that our analysis has discovered.

La Française des Jeux Société anonyme is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.