Shareholders Would Enjoy A Repeat Of Moulinvest's (EPA:ALMOU) Recent Growth In Returns

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Moulinvest's (EPA:ALMOU) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for Moulinvest, this is the formula:

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

0.24 = €25m ÷ (€137m - €32m) (Based on the trailing twelve months to February 2022).

Thus, Moulinvest has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Forestry industry average of 11%.

See our latest analysis for Moulinvest

In the above chart we have measured Moulinvest's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Moulinvest.

What Does the ROCE Trend For Moulinvest Tell Us?

The trends we've noticed at Moulinvest are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 24%. 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 141%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 23%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line

In summary, it's great to see that Moulinvest can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 707% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Moulinvest can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Moulinvest, we've spotted 2 warning signs, and 1 of them is a bit concerning.

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.