We Like These Underlying Return On Capital Trends At Société Française de Casinos Société Anonyme (EPA:SFCA)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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)

0.10 = €1.6m ÷ (€21m - €5.4m) (Based on the trailing twelve months to October 2023).

Thus, Société Française de Casinos Société Anonyme has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 7.5% it's much better.

View our latest analysis for Société Française de Casinos Société Anonyme

Historical performance is a great place to start when researching a stock so above you can see the gauge for Société Française de Casinos Société Anonyme's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Société Française de Casinos Société Anonyme.

How Are Returns Trending?

Société Française de Casinos Société Anonyme has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 237% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 37% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Key Takeaway

In a nutshell, we're pleased to see that Société Française de Casinos Société Anonyme has been able to generate higher returns from less capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

Société Française de Casinos Société Anonyme does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can'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.