Centrale d'Achat Française pour l'Outre-Mer Société Anonyme (EPA:CAFO) Will Want To Turn Around Its Return Trends

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Although, when we looked at Centrale d'Achat Française pour l'Outre-Mer Société Anonyme (EPA:CAFO), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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 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)

0.059 = €16m ÷ (€406m - €134m) (Based on the trailing twelve months to March 2023).

Therefore, Centrale d'Achat Française pour l'Outre-Mer Société Anonyme has an ROCE of 5.9%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 10%.

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

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 , check out these free graphs detailing revenue and cash flow performance of Centrale d'Achat Française pour l'Outre-Mer Société Anonyme.

How Are Returns Trending?

When we looked at the ROCE trend at Centrale d'Achat Française pour l'Outre-Mer Société Anonyme, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.9% from 9.1% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Centrale d'Achat Française pour l'Outre-Mer Société Anonyme has done well to pay down its current liabilities to 33% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Key Takeaway

In summary, Centrale d'Achat Française pour l'Outre-Mer Société Anonyme is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 46% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 3 warning signs for Centrale d'Achat Française pour l'Outre-Mer Société Anonyme you'll probably want to know about.

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.