Will SII (Société pour l'Informatique Industrielle) Société Anonyme (EPA:SII) Multiply In Value Going Forward?

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. 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, when we ran our eye over SII (Société pour l'Informatique Industrielle) Société Anonyme's (EPA:SII) trend of ROCE, we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for SII (Société pour l'Informatique Industrielle) Société Anonyme:

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

0.18 = €43m ÷ (€444m - €206m) (Based on the trailing twelve months to March 2020).

So, SII (Société pour l'Informatique Industrielle) Société Anonyme has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 12% generated by the IT industry.

Check out our latest analysis for SII (Société pour l'Informatique Industrielle) Société Anonyme

In the above chart we have measured SII (Société pour l'Informatique Industrielle) Société Anonyme's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for SII (Société pour l'Informatique Industrielle) Société Anonyme.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 115% more capital in the last five years, and the returns on that capital have remained stable at 18%. 18% is a pretty standard return, and it provides some comfort knowing that SII (Société pour l'Informatique Industrielle) Société Anonyme has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, SII (Société pour l'Informatique Industrielle) Société Anonyme's current liabilities are still rather high at 46% 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On SII (Société pour l'Informatique Industrielle) Société Anonyme's ROCE

In the end, SII (Société pour l'Informatique Industrielle) Société Anonyme has proven its ability to adequately reinvest capital at good rates of return. On top of that, the stock has rewarded shareholders with a remarkable 162% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing to note, we've identified 1 warning sign with SII (Société pour l'Informatique Industrielle) Société Anonyme and understanding this should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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