Will The ROCE Trend At Moulinvest (EPA:ALMOU) Continue?

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at Moulinvest (EPA:ALMOU) and its trend of ROCE, we really liked what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Moulinvest:

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

0.071 = €5.7m ÷ (€111m - €31m) (Based on the trailing twelve months to August 2020).

So, Moulinvest has an ROCE of 7.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.5%.

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, you can check out the forecasts from the analysts covering Moulinvest here for free.

What Can We Tell From Moulinvest's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.1%. Basically the business is earning more per dollar of capital invested and in addition to that, 97% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take 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 staggering 182% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Moulinvest, you might be interested to know about the 4 warning signs that our analysis has discovered.

While Moulinvest isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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