We Like These Underlying Return On Capital Trends At SergeFerrari Group (EPA:SEFER)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, we've noticed some promising trends at SergeFerrari Group (EPA:SEFER) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for SergeFerrari Group:

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

0.036 = €9.3m ÷ (€366m - €105m) (Based on the trailing twelve months to December 2023).

So, SergeFerrari Group has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 5.1%.

Check out our latest analysis for SergeFerrari Group

In the above chart we have measured SergeFerrari Group'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 SergeFerrari Group for free.

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 3.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 114% more capital is being employed now too. So we're very much inspired by what we're seeing at SergeFerrari Group thanks to its ability to profitably reinvest capital.

What We Can Learn From SergeFerrari Group's ROCE

All in all, it's terrific to see that SergeFerrari Group is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 24% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 4 warning signs we've spotted with SergeFerrari Group (including 1 which is a bit unpleasant) .

While SergeFerrari Group 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.