The Return Trends At SRP Groupe (EPA:SRP) Look Promising

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at SRP Groupe (EPA:SRP) and its trend of ROCE, we really liked what we saw.

What Is 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 SRP Groupe:

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

0.038 = €9.8m ÷ (€447m - €186m) (Based on the trailing twelve months to June 2022).

Thus, SRP Groupe has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Online Retail industry average of 12%.

View our latest analysis for SRP Groupe

In the above chart we have measured SRP Groupe's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For SRP Groupe Tell Us?

While there are companies with higher returns on capital out there, we still find the trend at SRP Groupe promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 30% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a side note, SRP Groupe's current liabilities are still rather high at 42% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From SRP Groupe's ROCE

In summary, we're delighted to see that SRP Groupe has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has dived 84% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

If you'd like to know more about SRP Groupe, we've spotted 3 warning signs, and 1 of them can't be ignored.

While SRP Groupe 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.