Is There More Growth In Store For Socfinaf's (BDL:SOFAF) Returns On Capital?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at Socfinaf (BDL:SOFAF) so let's look a bit deeper.

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. To calculate this metric for Socfinaf, this is the formula:

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

0.09 = €59m ÷ (€886m - €231m) (Based on the trailing twelve months to June 2020).

So, Socfinaf has an ROCE of 9.0%. On its own, that's a low figure but it's around the 8.2% average generated by the Food industry.

View our latest analysis for Socfinaf

Historical performance is a great place to start when researching a stock so above you can see the gauge for Socfinaf's ROCE against it's prior returns. If you're interested in investigating Socfinaf's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Socfinaf's ROCE Trend?

We're delighted to see that Socfinaf is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 9.0% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 37%. This could potentially mean that the company is selling some of its assets.

The Key Takeaway

In summary, it's great to see that Socfinaf has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has fallen 15% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

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

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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