Why You Should Like Antevenio, S.A.’s (EPA:ALANT) ROCE

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Today we'll evaluate Antevenio, S.A. (EPA:ALANT) to determine whether it could have potential as an investment idea. Specifically, we'll consider its Return On Capital Employed (ROCE), since that will give us an insight into how efficiently the business can generate profits from the capital it requires.

First of all, we'll work out how to calculate ROCE. Next, we'll compare it to others in its industry. And finally, we'll look at how its current liabilities are impacting its ROCE.

Understanding Return On Capital Employed (ROCE)

ROCE measures the amount of pre-tax profits a company can generate from the capital employed in its business. In general, businesses with a higher ROCE are usually better quality. Ultimately, it is a useful but imperfect metric. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.'

So, How Do We Calculate ROCE?

The formula for calculating the return on capital employed is:

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

Or for Antevenio:

0.16 = €3.0m ÷ (€28m - €8.7m) (Based on the trailing twelve months to December 2018.)

Therefore, Antevenio has an ROCE of 16%.

Check out our latest analysis for Antevenio

Is Antevenio's ROCE Good?

When making comparisons between similar businesses, investors may find ROCE useful. Using our data, we find that Antevenio's ROCE is meaningfully better than the 10% average in the Media industry. We would consider this a positive, as it suggests it is using capital more effectively than other similar companies. Separate from Antevenio's performance relative to its industry, its ROCE in absolute terms looks satisfactory, and it may be worth researching in more depth.

As we can see, Antevenio currently has an ROCE of 16% compared to its ROCE 3 years ago, which was 11%. This makes us think about whether the company has been reinvesting shrewdly.

Remember that this metric is backwards looking - it shows what has happened in the past, and does not accurately predict the future. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. ROCE is only a point-in-time measure. What happens in the future is pretty important for investors, so we have prepared a free report on analyst forecasts for Antevenio.

What Are Current Liabilities, And How Do They Affect Antevenio's ROCE?

Current liabilities are short term bills and invoices that need to be paid in 12 months or less. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.

Antevenio has total assets of €28m and current liabilities of €8.7m. Therefore its current liabilities are equivalent to approximately 31% of its total assets. With this level of current liabilities, Antevenio's ROCE is boosted somewhat.

Our Take On Antevenio's ROCE

Antevenio's ROCE does look good, but the level of current liabilities also contribute to that. Antevenio looks strong on this analysis, but there are plenty of other companies that could be a good opportunity . Here is a free list of companies growing earnings rapidly.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.