Will Moulinvest's (EPA:ALMOU) Growth In ROCE Persist?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Moulinvest's (EPA:ALMOU) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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 Moulinvest:

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

0.065 = €5.7m ÷ (€111m - €23m) (Based on the trailing twelve months to August 2020).

Thus, Moulinvest has an ROCE of 6.5%. Even though it's in line with the industry average of 5.7%, it's still a low return by itself.

View 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Moulinvest Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 6.5%. The amount of capital employed has increased too, by 116%. So we're very much inspired by what we're seeing at Moulinvest thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 21%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Moulinvest has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Moulinvest's ROCE

To sum it up, Moulinvest has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 52% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. 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 want to know some of the risks facing Moulinvest we've found 5 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

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