Groupe Parot (EPA:ALPAR) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Groupe Parot (EPA:ALPAR) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Groupe Parot is:

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

0.14 = €7.7m ÷ (€156m - €101m) (Based on the trailing twelve months to June 2022).

Thus, Groupe Parot has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 7.4% generated by the Specialty Retail industry.

View our latest analysis for Groupe Parot

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 want to delve into the historical earnings, revenue and cash flow of Groupe Parot, check out these free graphs here.

SWOT Analysis for Groupe Parot

So How Is Groupe Parot's ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at Groupe Parot. We found that the returns on capital employed over the last five years have risen by 517%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Groupe Parot appears to been achieving more with less, since the business is using 23% less capital to run its operation. Groupe Parot may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, Groupe Parot's current liabilities are still rather high at 64% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Groupe Parot's ROCE

In the end, Groupe Parot has proven it's capital allocation skills are good with those higher returns from less amount of capital. Although the company may be facing some issues elsewhere since the stock has plunged 77% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

On a final note, we found 5 warning signs for Groupe Parot (2 are potentially serious) you should be aware of.

While Groupe Parot may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.