Equasens Société anonyme (EPA:EQS) Will Want To Turn Around Its Return Trends

What are the early trends we should look for to identify a stock that could 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, while the ROCE is currently high for Equasens Société anonyme (EPA:EQS), we aren't jumping out of our chairs because returns are decreasing.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Equasens Société anonyme is:

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

0.22 = €51m ÷ (€345m - €115m) (Based on the trailing twelve months to June 2022).

Thus, Equasens Société anonyme has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Healthcare Services industry average of 11%.

Check out our latest analysis for Equasens Société anonyme

Above you can see how the current ROCE for Equasens 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.

The Trend Of ROCE

On the surface, the trend of ROCE at Equasens Société anonyme doesn't inspire confidence. Historically returns on capital were even higher at 28%, but they have dropped over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Equasens Société anonyme's ROCE

To conclude, we've found that Equasens Société anonyme is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 66% over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you're still interested in Equasens Société anonyme it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.