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Is Augros Cosmetic Packaging Société anonyme’s (EPA:AUGR) 26% ROCE Any Good?

Simply Wall St

Today we are going to look at Augros Cosmetic Packaging Société anonyme (EPA:AUGR) to see whether it might be an attractive investment prospect. Specifically, we're going to calculate its Return On Capital Employed (ROCE), in the hopes of getting some insight into the business.

Firstly, we'll go over how we calculate ROCE. Next, we'll compare it to others in its industry. Then we'll determine how its current liabilities are affecting its ROCE.

Return On Capital Employed (ROCE): What is it?

ROCE measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Generally speaking a higher ROCE is better. Ultimately, it is a useful but imperfect metric. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.

So, How Do We Calculate ROCE?

The formula for calculating the return on capital employed is:

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

Or for Augros Cosmetic Packaging Société anonyme:

0.26 = €1.1m ÷ (€10m - €5.8m) (Based on the trailing twelve months to June 2019.)

Therefore, Augros Cosmetic Packaging Société anonyme has an ROCE of 26%.

Check out our latest analysis for Augros Cosmetic Packaging Société anonyme

Is Augros Cosmetic Packaging Société anonyme's ROCE Good?

ROCE is commonly used for comparing the performance of similar businesses. Using our data, we find that Augros Cosmetic Packaging Société anonyme's ROCE is meaningfully better than the 11% average in the Packaging industry. We would consider this a positive, as it suggests it is using capital more effectively than other similar companies. Regardless of the industry comparison, in absolute terms, Augros Cosmetic Packaging Société anonyme's ROCE currently appears to be excellent.

You can click on the image below to see (in greater detail) how Augros Cosmetic Packaging Société anonyme's past growth compares to other companies.

ENXTPA:AUGR Past Revenue and Net Income, December 10th 2019

When considering ROCE, bear in mind that it reflects the past and does not necessarily predict the future. Companies in cyclical industries can be difficult to understand using ROCE, as returns typically look high during boom times, and low during busts. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. If Augros Cosmetic Packaging Société anonyme is cyclical, it could make sense to check out this free graph of past earnings, revenue and cash flow.

Augros Cosmetic Packaging Société anonyme's Current Liabilities And Their Impact On Its ROCE

Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. The ROCE equation subtracts current liabilities from capital employed, so a company with a lot of current liabilities appears to have less capital employed, and a higher ROCE than otherwise. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.

Augros Cosmetic Packaging Société anonyme has total assets of €10m and current liabilities of €5.8m. As a result, its current liabilities are equal to approximately 57% of its total assets. Augros Cosmetic Packaging Société anonyme boasts an attractive ROCE, even after considering the boost from high current liabilities.

The Bottom Line On Augros Cosmetic Packaging Société anonyme's ROCE

In my book, this business could be worthy of further research. Augros Cosmetic Packaging Société anonyme shapes up well under this analysis, but it is far from the only business delivering excellent numbers . You might also want to check this free collection of companies delivering excellent earnings growth.

I will like Augros Cosmetic Packaging Société anonyme better if I see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.