The Returns At Groupe Guillin (EPA:ALGIL) Provide Us With Signs Of What's To Come

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. With that in mind, the ROCE of Groupe Guillin (EPA:ALGIL) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Groupe Guillin is:

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

0.14 = €74m ÷ (€672m - €154m) (Based on the trailing twelve months to June 2020).

Thus, Groupe Guillin has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% generated by the Packaging industry.

See our latest analysis for Groupe Guillin

Above you can see how the current ROCE for Groupe Guillin compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Groupe Guillin.

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 60% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Groupe Guillin has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 23% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From Groupe Guillin's ROCE

The main thing to remember is that Groupe Guillin has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 31% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if Groupe Guillin is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

On a final note, we've found 1 warning sign for Groupe Guillin that we think you should be aware of.

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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