Société Financière des Caoutchoucs Société Anonyme (BDL:SOFIN) Is Investing Its Capital With Increasing Efficiency

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Société Financière des Caoutchoucs Société Anonyme's (BDL:SOFIN) look very promising so lets take a look.

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. The formula for this calculation on Société Financière des Caoutchoucs Société Anonyme is:

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

0.21 = €164m ÷ (€1.1b - €336m) (Based on the trailing twelve months to June 2021).

So, Société Financière des Caoutchoucs Société Anonyme has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Food industry average of 8.0%.

Check out our latest analysis for Société Financière des Caoutchoucs Société Anonyme

Historical performance is a great place to start when researching a stock so above you can see the gauge for Société Financière des Caoutchoucs Société Anonyme's ROCE against it's prior returns. If you'd like to look at how Société Financière des Caoutchoucs Société Anonyme has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Société Financière des Caoutchoucs Société Anonyme's ROCE Trending?

Société Financière des Caoutchoucs Société Anonyme has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 135% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Société Financière des Caoutchoucs Société Anonyme's ROCE

In summary, we're delighted to see that Société Financière des Caoutchoucs Société Anonyme has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Astute investors may have an opportunity here because the stock has declined 17% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.