What trends should we look for it we want to identify stocks that can 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Miliboo Société anonyme (EPA:ALMLB) and its trend of ROCE, we really liked what we saw.
Understanding 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 Miliboo Société anonyme is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.045 = €511k ÷ (€23m – €12m) (Based on the trailing twelve months to April 2022).
So, Miliboo Société anonyme has an ROCE of 4.5%. Ultimately, that’s a low return and it under-performs the Consumer Durables industry average of 11%.
See our latest analysis for Miliboo Société anonyme
In the above chart we have measured Miliboo Société anonyme’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 Miliboo Société anonyme here for free.
How Are Returns Trending?
We’re delighted to see that Miliboo Société anonyme is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it’s earning 4.5% which is a sight for sore eyes. In addition to that, Miliboo Société anonyme is employing 127% more capital than previously which is expected of a company that’s trying to break into profitability. This can indicate that there’s plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
On a side note, Miliboo Société anonyme’s current liabilities are still rather high at 52% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we’d like to see this reduce as that would mean fewer obligations bearing risks.
The Key Takeaway
To the delight of most shareholders, Miliboo Société anonyme has now broken into profitability. Given the stock has declined 23% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company’s current valuation metrics and future prospects seems fitting.
Since virtually every company faces some risks, it’s worth knowing what they are, and we’ve spotted 5 warning signs for Miliboo Société anonyme (of which 2 are a bit unpleasant!) that you should know about.
While Miliboo Société anonyme 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.
Valuation is complex, but we’re helping make it simple.
Find out whether Miliboo Société anonyme is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.