Centrale d'Achat Française pour l'Outre-Mer Société Anonyme (EPA:CAFO) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Centrale d'Achat Française pour l'Outre-Mer Société Anonyme's (EPA:CAFO) returns on capital, so let's have a look.

What is 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 Centrale d'Achat Française pour l'Outre-Mer Société Anonyme is:

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

0.14 = €39m ÷ (€420m - €139m) (Based on the trailing twelve months to September 2021).

Therefore, Centrale d'Achat Française pour l'Outre-Mer Société Anonyme has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Specialty Retail industry average of 8.8% it's much better.

Check out our latest analysis for Centrale d'Achat Française pour l'Outre-Mer Société Anonyme

Historical performance is a great place to start when researching a stock so above you can see the gauge for Centrale d'Achat Française pour l'Outre-Mer Société Anonyme's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Centrale d'Achat Française pour l'Outre-Mer Société Anonyme, check out these free graphs here.

The Trend Of ROCE

We like the trends that we're seeing from Centrale d'Achat Française pour l'Outre-Mer Société Anonyme. Over the last five years, returns on capital employed have risen substantially to 14%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 79%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 33%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Centrale d'Achat Française pour l'Outre-Mer Société Anonyme has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

In summary, it's great to see that Centrale d'Achat Française pour l'Outre-Mer Société Anonyme can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with a respectable 79% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 2 warning signs for Centrale d'Achat Française pour l'Outre-Mer Société Anonyme that we think you should be aware of.

While Centrale d'Achat Française pour l'Outre-Mer Société Anonyme isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.