Investors Will Want Exacompta Clairefontaine's (EPA:ALEXA) Growth In ROCE To Persist

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Exacompta Clairefontaine (EPA:ALEXA) and its trend of ROCE, we really liked what we saw.

What is 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 Exacompta Clairefontaine:

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

0.047 = €30m ÷ (€899m - €254m) (Based on the trailing twelve months to December 2021).

Thus, Exacompta Clairefontaine has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 11%.

Check out our latest analysis for Exacompta Clairefontaine

Historical performance is a great place to start when researching a stock so above you can see the gauge for Exacompta Clairefontaine's ROCE against it's prior returns. If you're interested in investigating Exacompta Clairefontaine's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 4.7%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 34%. So we're very much inspired by what we're seeing at Exacompta Clairefontaine thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Exacompta Clairefontaine is reaping the rewards from prior investments and is growing its capital base. Since the stock has only returned 19% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 1 warning sign facing Exacompta Clairefontaine that you might find interesting.

While Exacompta Clairefontaine may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.