Société Française de Casinos Société Anonyme (EPA:SFCA) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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, we've noticed some promising trends at Société Française de Casinos Société Anonyme (EPA:SFCA) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Société Française de Casinos Société Anonyme is:

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

0.099 = €1.5m ÷ (€21m - €6.3m) (Based on the trailing twelve months to October 2022).

Therefore, Société Française de Casinos Société Anonyme has an ROCE of 9.9%. On its own, that's a low figure but it's around the 9.0% average generated by the Hospitality industry.

Check out our latest analysis for Société Française de Casinos Société Anonyme

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Société Française de Casinos Société Anonyme has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Société Française de Casinos Société Anonyme's ROCE Trend?

We're pretty happy with how the ROCE has been trending at Société Française de Casinos Société Anonyme. The data shows that returns on capital have increased by 332% over the trailing five years. The company is now earning €0.1 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 48% less capital than it was five years ago. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Key Takeaway

From what we've seen above, Société Française de Casinos Société Anonyme has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 23% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Société Française de Casinos Société Anonyme, we've spotted 3 warning signs, and 2 of them shouldn't be ignored.

While Société Française de Casinos Société Anonyme isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.