We Like These Underlying Return On Capital Trends At SMCP (EPA:SMCP)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at SMCP (EPA:SMCP) and its trend of ROCE, we really liked what we saw.

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Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for SMCP:

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

0.022 = €39m ÷ (€2.2b - €445m) (Based on the trailing twelve months to June 2025).

So, SMCP has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 8.2%.

See our latest analysis for SMCP

Above you can see how the current ROCE for SMCP 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 SMCP for free.

The Trend Of ROCE

While the ROCE is still rather low for SMCP, we're glad to see it heading in the right direction. We found that the returns on capital employed over the last five years have risen by 76%. The company is now earning €0.02 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 25% less capital than it was five years ago. SMCP may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In the end, SMCP has proven it's capital allocation skills are good with those higher returns from less amount of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 78% return over the last five years. In light of that, we think it's worth looking further into this stock because if SMCP can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for SMCP that we think you should be aware of.

While SMCP 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.