Are Investors Overlooking Returns On Capital At Focus Home Interactive Société anonyme (EPA:ALFOC)?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Focus Home Interactive Société anonyme (EPA:ALFOC), we liked what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Focus Home Interactive Société anonyme, this is the formula:

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

0.30 = €24m ÷ (€117m - €37m) (Based on the trailing twelve months to September 2020).

So, Focus Home Interactive Société anonyme has an ROCE of 30%. That's a fantastic return and not only that, it outpaces the average of 6.4% earned by companies in a similar industry.

View our latest analysis for Focus Home Interactive Société anonyme

Above you can see how the current ROCE for Focus Home Interactive Société anonyme compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Focus Home Interactive Société anonyme.

What Does the ROCE Trend For Focus Home Interactive Société anonyme Tell Us?

In terms of Focus Home Interactive Société anonyme's history of ROCE, it's quite impressive. The company has consistently earned 30% for the last five years, and the capital employed within the business has risen 233% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Focus Home Interactive Société anonyme can keep this up, we'd be very optimistic about its future.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 32% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

In Conclusion...

In short, we'd argue Focus Home Interactive Société anonyme has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 183% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Focus Home Interactive Société anonyme does have some risks though, and we've spotted 1 warning sign for Focus Home Interactive Société anonyme that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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