Returns On Capital Are Showing Encouraging Signs At Bourrelier Group (EPA:ALBOU)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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, Bourrelier Group (EPA:ALBOU) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Bourrelier Group is:

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

0.013 = €6.7m ÷ (€600m - €86m) (Based on the trailing twelve months to December 2022).

Thus, Bourrelier Group has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 7.4%.

Check out our latest analysis for Bourrelier Group

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're interested in investigating Bourrelier Group's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Bourrelier Group has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 1.3% which is a sight for sore eyes. In addition to that, Bourrelier Group is employing 41% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 14%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Bourrelier Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

Long story short, we're delighted to see that Bourrelier Group's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 25% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching Bourrelier Group, you might be interested to know about the 3 warning signs that our analysis has discovered.

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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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.