There Are Reasons To Feel Uneasy About Corticeira Amorim S.G.P.S' (ELI:COR) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Corticeira Amorim S.G.P.S (ELI:COR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Understanding 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. Analysts use this formula to calculate it for Corticeira Amorim S.G.P.S:

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

0.096 = €98m ÷ (€1.3b - €304m) (Based on the trailing twelve months to March 2025).

So, Corticeira Amorim S.G.P.S has an ROCE of 9.6%. Even though it's in line with the industry average of 9.6%, it's still a low return by itself.

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

In the above chart we have measured Corticeira Amorim S.G.P.S' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Corticeira Amorim S.G.P.S for free.

The Trend Of ROCE

When we looked at the ROCE trend at Corticeira Amorim S.G.P.S, we didn't gain much confidence. To be more specific, ROCE has fallen from 13% over the last five years. However it looks like Corticeira Amorim S.G.P.S might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a related note, Corticeira Amorim S.G.P.S has decreased its current liabilities to 23% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Key Takeaway

To conclude, we've found that Corticeira Amorim S.G.P.S is reinvesting in the business, but returns have been falling. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing, we've spotted 1 warning sign facing Corticeira Amorim S.G.P.S that you might find interesting.

While Corticeira Amorim S.G.P.S may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.