La Française de l'Energie's (EPA:FDE) Returns On Capital Are Heading Higher

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in La Française de l'Energie's (EPA:FDE) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on La Française de l'Energie is:

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

0.052 = €5.9m ÷ (€129m - €15m) (Based on the trailing twelve months to December 2021).

So, La Française de l'Energie has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 11%.

See our latest analysis for La Française de l'Energie

Above you can see how the current ROCE for La Française de l'Energie compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering La Française de l'Energie here for free.

So How Is La Française de l'Energie's ROCE Trending?

La Française de l'Energie has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 5.2% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, La Française de l'Energie is utilizing 94% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In Conclusion...

Overall, La Française de l'Energie gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 202% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing La Française de l'Energie that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.