These Return Metrics Don't Make Compagnie de l'Odet (EPA:ODET) Look Too Strong

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. And from a first read, things don't look too good at Compagnie de l'Odet (EPA:ODET), so let's see why.

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. The formula for this calculation on Compagnie de l'Odet is:

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

0.01 = €479m ÷ (€61b - €15b) (Based on the trailing twelve months to June 2024).

So, Compagnie de l'Odet has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 11%.

See our latest analysis for Compagnie de l'Odet

Historical performance is a great place to start when researching a stock so above you can see the gauge for Compagnie de l'Odet's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Compagnie de l'Odet.

What Does the ROCE Trend For Compagnie de l'Odet Tell Us?

In terms of Compagnie de l'Odet's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 3.6% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Compagnie de l'Odet becoming one if things continue as they have.

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 96% return over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you want to continue researching Compagnie de l'Odet, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Compagnie de l'Odet isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.