What Do The Returns On Capital At Vilmorin & Cie (EPA:RIN) Tell Us?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Vilmorin & Cie (EPA:RIN) and its ROCE trend, we weren't exactly thrilled.

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. To calculate this metric for Vilmorin & Cie, this is the formula:

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

0.053 = €108m ÷ (€3.2b - €1.2b) (Based on the trailing twelve months to June 2020).

Therefore, Vilmorin & Cie has an ROCE of 5.3%. Ultimately, that's a low return and it under-performs the Food industry average of 7.6%.

Check out our latest analysis for Vilmorin & Cie

In the above chart we have measured Vilmorin & Cie's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Vilmorin & Cie here for free.

How Are Returns Trending?

Over the past five years, Vilmorin & Cie's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Vilmorin & Cie to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Vilmorin & Cie has been paying out a decent 33% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

Our Take On Vilmorin & Cie's ROCE

In summary, Vilmorin & Cie isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly, the stock has only gained 6.3% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a separate note, we've found 2 warning signs for Vilmorin & Cie 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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