The Returns On Capital At Compagnie de l'Odet (EPA:ODET) Don't Inspire Confidence

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. Having said that, after a brief look, Compagnie de l'Odet (EPA:ODET) we aren't filled with optimism, but let's investigate further.

What Is 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 Compagnie de l'Odet:

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

0.02 = €811m ÷ (€52b - €12b) (Based on the trailing twelve months to June 2023).

So, Compagnie de l'Odet has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Logistics industry average of 13%.

Check out our latest analysis for Compagnie de l'Odet

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'd like to look at how Compagnie de l'Odet has performed in the past in other metrics, you can view this free graph of Compagnie de l'Odet's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Compagnie de l'Odet's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 2.9% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Compagnie de l'Odet to turn into a multi-bagger.

Our Take On Compagnie de l'Odet's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Yet despite these concerning fundamentals, the stock has performed strongly with a 75% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you'd like to know about the risks facing Compagnie de l'Odet, we've discovered 1 warning sign that you should be aware of.

While Compagnie de l'Odet 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.