If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Acheter-Louer.Fr (EPA:ALALO) looks quite promising in regards to its trends of return on capital.
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. To calculate this metric for Acheter-Louer.Fr, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.047 = €588k ÷ (€14m - €1.4m) (Based on the trailing twelve months to June 2020).
Thus, Acheter-Louer.Fr has an ROCE of 4.7%. Even though it's in line with the industry average of 4.7%, it's still a low return by itself.
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Acheter-Louer.Fr, check out these free graphs here.
How Are Returns Trending?
Acheter-Louer.Fr has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.7% on its capital. And unsurprisingly, like most companies trying to break into the black, Acheter-Louer.Fr is utilizing 48% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
The Bottom Line On Acheter-Louer.Fr's ROCE
Long story short, we're delighted to see that Acheter-Louer.Fr's reinvestment activities have paid off and the company is now profitable. And with a respectable 52% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Acheter-Louer.Fr can keep these trends up, it could have a bright future ahead.
One more thing, we've spotted 4 warning signs facing Acheter-Louer.Fr that you might find interesting.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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