SES-imagotag Société Anonyme (EPA:SESL) Might Be Having Difficulty Using Its Capital Effectively

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating SES-imagotag Société Anonyme (EPA:SESL), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for SES-imagotag Société Anonyme, this is the formula:

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

0.027 = €7.4m ÷ (€488m - €216m) (Based on the trailing twelve months to June 2021).

So, SES-imagotag Société Anonyme has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Electronic industry average of 7.9%.

See our latest analysis for SES-imagotag Société Anonyme

In the above chart we have measured SES-imagotag Société Anonyme's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering SES-imagotag Société Anonyme here for free.

So How Is SES-imagotag Société Anonyme's ROCE Trending?

In terms of SES-imagotag Société Anonyme's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 5.2% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, SES-imagotag Société Anonyme's current liabilities have increased over the last five years to 44% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 2.7%. What this means is that in reality, a rather large portion of the business is being funded by the likes of the company's suppliers or short-term creditors, which can bring some risks of its own.

Our Take On SES-imagotag Société Anonyme's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for SES-imagotag Société Anonyme. And the stock has done incredibly well with a 165% return over the last five years, so long term investors are no doubt ecstatic with that result. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a separate note, we've found 1 warning sign for SES-imagotag Société Anonyme you'll probably want to know about.

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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.