Here's What's Concerning About Malteries Franco-Belges Société Anonyme's (EPA:MALT) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Malteries Franco-Belges Société Anonyme (EPA:MALT), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. Analysts use this formula to calculate it for Malteries Franco-Belges Société Anonyme:

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

0.019 = €4.8m ÷ (€286m - €40m) (Based on the trailing twelve months to June 2022).

Thus, Malteries Franco-Belges Société Anonyme has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Food industry average of 5.9%.

View our latest analysis for Malteries Franco-Belges Société Anonyme

Historical performance is a great place to start when researching a stock so above you can see the gauge for Malteries Franco-Belges Société Anonyme's ROCE against it's prior returns. If you'd like to look at how Malteries Franco-Belges Société Anonyme has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Malteries Franco-Belges Société Anonyme's ROCE Trending?

In terms of Malteries Franco-Belges Société Anonyme's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.9% from 3.2% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

While returns have fallen for Malteries Franco-Belges Société Anonyme in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These trends are starting to be recognized by investors since the stock has delivered a 28% gain to shareholders who've held over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

On a separate note, we've found 1 warning sign for Malteries Franco-Belges Société Anonyme you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.