Returns On Capital At Unibel (EPA:UNBL) Paint A Concerning Picture

Did you know there are some financial metrics that can provide clues of a potential 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. Although, when we looked at Unibel (EPA:UNBL), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Unibel is:

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

0.089 = €282m ÷ (€4.0b - €809m) (Based on the trailing twelve months to June 2020).

So, Unibel has an ROCE of 8.9%. On its own that's a low return, but compared to the average of 7.2% generated by the Food industry, it's much better.

View our latest analysis for Unibel

Historical performance is a great place to start when researching a stock so above you can see the gauge for Unibel's ROCE against it's prior returns. If you'd like to look at how Unibel 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 Unibel's ROCE Trend?

On the surface, the trend of ROCE at Unibel doesn't inspire confidence. Around five years ago the returns on capital were 13%, but since then they've fallen to 8.9%. However it looks like Unibel might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Key Takeaway

To conclude, we've found that Unibel is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 0.9% 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.

One final note, you should learn about the 4 warning signs we've spotted with Unibel (including 2 which are concerning) .

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. 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.
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