Plastiques du Val de Loire's (EPA:PVL) Returns On Capital Not Reflecting Well On The Business

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Plastiques du Val de Loire (EPA:PVL), we don't think it's current trends fit the mold of a multi-bagger.

What is 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 Plastiques du Val de Loire is:

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

0.035 = €18m ÷ (€772m - €258m) (Based on the trailing twelve months to September 2021).

Thus, Plastiques du Val de Loire has an ROCE of 3.5%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 7.8%.

Check out our latest analysis for Plastiques du Val de Loire

In the above chart we have measured Plastiques du Val de Loire'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 Plastiques du Val de Loire here for free.

The Trend Of ROCE

On the surface, the trend of ROCE at Plastiques du Val de Loire doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.5% from 15% five years ago. However it looks like Plastiques du Val de Loire might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that Plastiques du Val de Loire is reinvesting in the business, but returns have been falling. Since the stock has declined 66% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Plastiques du Val de Loire does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...

While Plastiques du Val de Loire 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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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.