Investors Could Be Concerned With Grolleau Société Anonyme's (EPA:ALGRO) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Grolleau Société Anonyme (EPA:ALGRO) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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 Grolleau Société Anonyme is:

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

0.031 = €708k ÷ (€31m - €9.0m) (Based on the trailing twelve months to September 2022).

Therefore, Grolleau Société Anonyme has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 13%.

View our latest analysis for Grolleau Société Anonyme

Above you can see how the current ROCE for Grolleau Société Anonyme compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Grolleau Société Anonyme here for free.

So How Is Grolleau Société Anonyme's ROCE Trending?

In terms of Grolleau Société Anonyme's historical ROCE movements, the trend isn't fantastic. Over the last two years, returns on capital have decreased to 3.1% from 4.8% two years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Grolleau Société Anonyme's ROCE

While returns have fallen for Grolleau Société Anonyme in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 41% over the last year, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you'd like to know more about Grolleau Société Anonyme, we've spotted 5 warning signs, and 2 of them make us uncomfortable.

While Grolleau Société Anonyme 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.