There's Been No Shortage Of Growth Recently For Centrale d'Achat Française pour l'Outre-Mer Société Anonyme's (EPA:CAFO) Returns On Capital

By
Simply Wall St
Published
November 26, 2021
ENXTPA:CAFO
Source: Shutterstock

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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, Centrale d'Achat Française pour l'Outre-Mer Société Anonyme (EPA:CAFO) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Centrale d'Achat Française pour l'Outre-Mer Société Anonyme:

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

0.14 = €37m ÷ (€416m - €142m) (Based on the trailing twelve months to March 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 9.8% it's much better.

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

roce
ENXTPA:CAFO Return on Capital Employed November 27th 2021

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 Centrale d'Achat Française pour l'Outre-Mer Société Anonyme's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Centrale d'Achat Française pour l'Outre-Mer Société Anonyme has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 14% on its capital. In addition to that, Centrale d'Achat Française pour l'Outre-Mer Société Anonyme is employing 57% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 34%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Centrale d'Achat Française pour l'Outre-Mer Société Anonyme's ROCE

Overall, Centrale d'Achat Française pour l'Outre-Mer Société Anonyme gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 44% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

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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