Vranken-Pommery Monopole Société Anonyme (EPA:VRAP) Will Be Hoping To Turn Its Returns On Capital Around

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. Having said that, after a brief look, Vranken-Pommery Monopole Société Anonyme (EPA:VRAP) we aren't filled with optimism, but let's investigate further.

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 Vranken-Pommery Monopole Société Anonyme is:

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

0.017 = €18m ÷ (€1.3b - €230m) (Based on the trailing twelve months to December 2020).

Therefore, Vranken-Pommery Monopole Société Anonyme has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 3.6%.

Check out our latest analysis for Vranken-Pommery Monopole Société Anonyme

Above you can see how the current ROCE for Vranken-Pommery Monopole Société Anonyme compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Vranken-Pommery Monopole Société Anonyme Tell Us?

There is reason to be cautious about Vranken-Pommery Monopole Société Anonyme, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 2.5% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Vranken-Pommery Monopole Société Anonyme becoming one if things continue as they have.

What We Can Learn From Vranken-Pommery Monopole Société Anonyme's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. It should come as no surprise then that the stock has fallen 12% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Vranken-Pommery Monopole Société Anonyme (including 1 which shouldn't be ignored) .

While Vranken-Pommery Monopole 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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