Is Figeac Aero Société Anonyme (EPA:FGA) Struggling With Its 5.1% Return On Capital Employed?
Today we'll look at Figeac Aero Société Anonyme (EPA:FGA) and reflect on its potential as an investment. Specifically, we'll consider its Return On Capital Employed (ROCE), since that will give us an insight into how efficiently the business can generate profits from the capital it requires.
First of all, we'll work out how to calculate ROCE. Then we'll compare its ROCE to similar companies. Then we'll determine how its current liabilities are affecting its ROCE.
What is Return On Capital Employed (ROCE)?
ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. In general, businesses with a higher ROCE are usually better quality. In brief, it is a useful tool, but it is not without drawbacks. Renowned investment researcher Michael Mauboussin has suggested that a high ROCE can indicate that 'one dollar invested in the company generates value of more than one dollar'.
How Do You Calculate Return On Capital Employed?
Analysts use this formula to calculate return on capital employed:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Or for Figeac Aero Société Anonyme:
0.051 = €30m ÷ (€829m - €233m) (Based on the trailing twelve months to September 2019.)
So, Figeac Aero Société Anonyme has an ROCE of 5.1%.
View our latest analysis for Figeac Aero Société Anonyme
Does Figeac Aero Société Anonyme Have A Good ROCE?
ROCE can be useful when making comparisons, such as between similar companies. Using our data, Figeac Aero Société Anonyme's ROCE appears to be significantly below the 10% average in the Aerospace & Defense industry. This performance could be negative if sustained, as it suggests the business may underperform its industry. Setting aside the industry comparison for now, Figeac Aero Société Anonyme's ROCE is mediocre in absolute terms, considering the risk of investing in stocks versus the safety of a bank account. Investors may wish to consider higher-performing investments.
We can see that, Figeac Aero Société Anonyme currently has an ROCE of 5.1%, less than the 9.1% it reported 3 years ago. So investors might consider if it has had issues recently. You can click on the image below to see (in greater detail) how Figeac Aero Société Anonyme's past growth compares to other companies.
Remember that this metric is backwards looking - it shows what has happened in the past, and does not accurately predict the future. ROCE can be misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. ROCE is, after all, simply a snap shot of a single year. What happens in the future is pretty important for investors, so we have prepared a free report on analyst forecasts for Figeac Aero Société Anonyme.
Figeac Aero Société Anonyme's Current Liabilities And Their Impact On Its ROCE
Current liabilities include invoices, such as supplier payments, short-term debt, or a tax bill, that need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To counter this, investors can check if a company has high current liabilities relative to total assets.
Figeac Aero Société Anonyme has total assets of €829m and current liabilities of €233m. As a result, its current liabilities are equal to approximately 28% of its total assets. This is a modest level of current liabilities, which would only have a small effect on ROCE.
Our Take On Figeac Aero Société Anonyme's ROCE
If Figeac Aero Société Anonyme continues to earn an uninspiring ROCE, there may be better places to invest. Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.
