If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Acheter-Louer.Fr's (EPA:ALALO) returns on capital, so let's have a look.
What is 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. The formula for this calculation on Acheter-Louer.Fr is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.048 = €574k ÷ (€13m - €1.1m) (Based on the trailing twelve months to December 2019).
Therefore, Acheter-Louer.Fr has an ROCE of 4.8%. Even though it's in line with the industry average of 5.3%, it's still a low return by itself.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Acheter-Louer.Fr's ROCE against it's prior returns. If you'd like to look at how Acheter-Louer.Fr has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Acheter-Louer.Fr 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 4.8%. The amount of capital employed has increased too, by 39%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
What We Can Learn From Acheter-Louer.Fr's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Acheter-Louer.Fr has. Although the company may be facing some issues elsewhere since the stock has plunged 71% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.
One final note, you should learn about the 4 warning signs we've spotted with Acheter-Louer.Fr (including 1 which is is a bit unpleasant) .
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. 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.
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