Investors Will Want Mr. Bricolage's (EPA:ALMRB) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Mr. Bricolage's (EPA:ALMRB) returns on capital, so let's have a look.

Understanding 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. Analysts use this formula to calculate it for Mr. Bricolage:

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

0.13 = €22m ÷ (€361m - €192m) (Based on the trailing twelve months to December 2020).

So, Mr. Bricolage has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Specialty Retail industry average of 6.4% it's much better.

View our latest analysis for Mr. Bricolage

Above you can see how the current ROCE for Mr. Bricolage compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Mr. Bricolage here for free.

What Can We Tell From Mr. Bricolage's ROCE Trend?

We're pretty happy with how the ROCE has been trending at Mr. Bricolage. The data shows that returns on capital have increased by 118% over the trailing five years. The company is now earning €0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 52% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 53% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

In Conclusion...

From what we've seen above, Mr. Bricolage has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 23% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing, we've spotted 2 warning signs facing Mr. Bricolage that you might find interesting.

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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