Some investors may be concerned about Sogeclair’s return on capital (EPA:SOG)
If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. First, we’ll want to see proof to return to on capital employed (ROCE) which is increasing, and on the other hand, a based capital employed. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. In light of this, when we looked Sogeclair (EPA:SOG) and its ROCE trend, we weren’t exactly thrilled.
What is return on capital employed (ROCE)?
For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. To calculate this metric for Sogeclair, here is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.047 = €4.1M ÷ (€150M – €63M) (Based on the last twelve months to December 2021).
So, Sogeclair posted a ROCE of 4.7%. In absolute terms, this is a poor performer and it also underperforms the Aerospace & Defense sector average of 7.5%.
See our latest analysis for Sogeclair
Above, you can see how Sogeclair’s current ROCE compares to its past returns on capital, but you can’t tell much about the past. If you want to see what analysts are predicting for the future, you should check out our free report for Sogeclair.
What the ROCE trend can tell us
When we looked at the ROCE trend at Sogeclair, we didn’t gain much confidence. Over the past five years, capital returns have declined to 4.7% from 13% five years ago. On the other hand, the company has employed more capital without a corresponding improvement in sales over the past year, which might suggest that these investments are longer-term investments. It’s worth keeping an eye on the company’s earnings going forward to see if those investments end up contributing to the bottom line.
On a separate but related note, it is important to know that Sogeclair has a current liabilities to total assets ratio of 42%, which we consider quite high. This may entail certain risks, since the company is essentially dependent on its suppliers or other types of short-term creditors. Ideally, we would like this to decrease, as this would mean fewer risky bonds.
The Key Takeaway
In summary, Sogeclair is reinvesting funds into the business for growth, but unfortunately it seems sales haven’t grown much yet. Given that the stock has fallen 26% in the past five years, investors may not be too optimistic that this trend is improving either. Therefore, based on the analysis carried out in this article, we do not believe that Sogeclair has the makings of a multi-bagger.
Sogeclair has risks, we have noticed it 3 warning signs (and 1 which is a little worrying) that we think you should know about.
Although Sogeclair does not currently achieve the highest returns, we have compiled a list of companies that currently generate more than 25% return on equity. look at this free list here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.