Corticeira Amorim S.G.P.S' (ELI:COR) Returns On Capital Not Reflecting Well On The Business

Simply Wall St · 6d ago

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. 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.

What Is 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 Corticeira Amorim S.G.P.S is:

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

0.099 = €106m ÷ (€1.1b - €22m) (Based on the trailing twelve months to September 2024).

Therefore, Corticeira Amorim S.G.P.S has an ROCE of 9.9%. Even though it's in line with the industry average of 9.9%, it's still a low return by itself.

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

roce
ENXTLS:COR Return on Capital Employed November 26th 2024

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 analyst report for Corticeira Amorim S.G.P.S .

The Trend Of ROCE

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 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 may take some time before the company starts to see any change in earnings from these investments.

On a side note, Corticeira Amorim S.G.P.S has done well to pay down its current liabilities to 2.0% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. 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.

Our Take On Corticeira Amorim S.G.P.S' ROCE

Bringing it all together, while we're somewhat encouraged by Corticeira Amorim S.G.P.S' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 11% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Corticeira Amorim S.G.P.S could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for COR on our platform quite valuable.

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.