Capital Allocation Trends At Corticeira Amorim S.G.P.S (ELI:COR) Aren't Ideal

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Corticeira Amorim S.G.P.S (ELI:COR) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Corticeira Amorim S.G.P.S, this is the formula:

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

0.13 = €114m ÷ (€1.3b - €388m) (Based on the trailing twelve months to June 2022).

Therefore, Corticeira Amorim S.G.P.S has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Packaging industry.

See our latest analysis for Corticeira Amorim S.G.P.S

Above you can see how the current ROCE for Corticeira Amorim S.G.P.S compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Corticeira Amorim S.G.P.S.

What Does the ROCE Trend For Corticeira Amorim S.G.P.S Tell Us?

On the surface, the trend of ROCE at Corticeira Amorim S.G.P.S doesn't inspire confidence. To be more specific, ROCE has fallen from 19% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Corticeira Amorim S.G.P.S. These growth trends haven't led to growth returns though, since the stock has fallen 11% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Corticeira Amorim S.G.P.S does have some risks though, and we've spotted 1 warning sign for Corticeira Amorim S.G.P.S that you might be interested in.

While Corticeira Amorim S.G.P.S 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.