There are a few key trends to look for if we are to identify the next multi-bagger. A common approach is to try to find a business with Return on capital employed (ROCE) which increases, in connection with growth quantity capital employed. Basically, it means that a business has profitable initiatives that it can keep reinvesting in, which is a hallmark of a dialing machine. That said, from the first glance at Odet Company (EPA: ODET) We’re not jumping from our chairs on the yield trend, but taking a closer look.

What is Return on Employee Capital (ROCE)?

If you’ve never worked with ROCE before, it measures the “return” (profit before tax) that a business generates on capital employed in its business. The formula for this calculation on the Compagnie de l’Odet is:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.047 = € 1.9bn ÷ (€ 58bn – € 17bn) (Based on the last twelve months up to June 2021).

Therefore, Compagnie de l’Odet posted a ROCE of 4.7%. At the end of the day, that’s a low yield and it’s below the logistics industry average of 14%.

Consult our latest analysis for the Compagnie de l’Odet

Although the past is not representative of the future, it can be useful to know the historical performance of a company, which is why we have this graph above. If you would like to see how the Compagnie de l’Odet has performed in the past in other measures, you can consult this free graph of past income, income and cash flow.

So, what is the evolution of the ROCE of the Compagnie de l’Odet?

The profitability of capital has not changed much for Compagnie de l’Odet in recent years. Over the past five years, ROCE has remained relatively stable at around 4.7% and the company has deployed 227% additional capital in its operations. This low ROCE does not inspire confidence at the moment, and with the increase in capital employed, it is evident that the company is not deploying the funds in high return investments.

The bottom line

In conclusion, the Compagnie de l’Odet invested more capital in the company, but the returns on this capital did not increase. Given that the stock has gained an impressive 74% over the past five years, investors must think there are better things to come. However, unless these underlying trends turned more positive, our hopes would not be too high.

Like most companies, Compagnie de l’Odet involves risks and we have observed 1 warning sign that you need to be aware of.

While Compagnie de l’Odet does not get the best return, check out this free list of companies that generate high returns on equity with strong balance sheets.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only 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 into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.