Some Investors May Be Worried About Plastiques du Val de Loire's (EPA:PVL) Returns On Capital
To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Plastiques du Val de Loire (EPA:PVL), we weren't too hopeful.
Understanding Return On Capital Employed (ROCE)
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. To calculate this metric for Plastiques du Val de Loire, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.015 = €6.3m ÷ (€746m - €332m) (Based on the trailing twelve months to March 2025).
Thus, Plastiques du Val de Loire has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 7.3%.
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 to see what analysts are forecasting going forward, you should check out our free analyst report for Plastiques du Val de Loire .
So How Is Plastiques du Val de Loire's ROCE Trending?
There is reason to be cautious about Plastiques du Val de Loire, given the returns are trending downwards. To be more specific, the ROCE was 6.9% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Plastiques du Val de Loire becoming one if things continue as they have.
Another thing to note, Plastiques du Val de Loire has a high ratio of current liabilities to total assets of 44%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Key Takeaway
All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. It should come as no surprise then that the stock has fallen 65% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
Plastiques du Val de Loire does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.