What Can The Trends At Société Financière des Caoutchoucs Société Anonyme (BDL:SOFIN) Tell Us About Their Returns?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Société Financière des Caoutchoucs Société Anonyme's (BDL:SOFIN) returns on capital, so let's have a look.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its 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)

0.11 = €91m ÷ (€1.1b - €248m) (Based on the trailing twelve months to June 2020).

Thus, Société Financière des Caoutchoucs Société Anonyme has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 8.2% it's much better.

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

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 want to delve into the historical earnings, revenue and cash flow of Société Financière des Caoutchoucs Société Anonyme, check out these free graphs here.

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

Société Financière des Caoutchoucs Société Anonyme has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 571%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 57% less capital than it was five years ago. Société Financière des Caoutchoucs Société Anonyme may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 22% of the business, which is more than it was five years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

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

In summary, it's great to see that Société Financière des Caoutchoucs Société Anonyme has been able to turn things around and earn higher returns on lower amounts of capital. Considering the stock has delivered 1.1% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

While Société Financière des Caoutchoucs Société Anonyme 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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