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# Is Millet Innovation SA (EPA:ALINN) Investing Your Capital Efficiently?

Today we are going to look at Millet Innovation SA (EPA:ALINN) 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.

First of all, we'll work out how to calculate ROCE. Second, we'll look at its ROCE compared to similar companies. Last but not least, we'll look at what impact its current liabilities have on its ROCE.

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

ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Generally speaking a higher ROCE is better. Ultimately, it is a useful but imperfect metric. 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?

The formula for calculating the return on capital employed is:

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

Or for Millet Innovation:

0.097 = â‚¬1.5m Ã· (â‚¬19m - â‚¬4.0m) (Based on the trailing twelve months to December 2018.)

Therefore, Millet Innovation has an ROCE of 9.7%.

### Does Millet Innovation Have A Good ROCE?

ROCE is commonly used for comparing the performance of similar businesses. In this analysis, Millet Innovation's ROCE appears meaningfully below the 14% average reported by the Personal Products industry. This performance is not ideal, as it suggests the company may not be deploying its capital as effectively as some competitors. Independently of how Millet Innovation compares to its industry, its ROCE in absolute terms appears decent, and the company may be worthy of closer investigation.

We can see that , Millet Innovation currently has an ROCE of 9.7%, less than the 20% it reported 3 years ago. This makes us wonder if the business is facing new challenges. The image below shows how Millet Innovation's ROCE compares to its industry, and you can click it to see more detail on its past growth.

When considering ROCE, bear in mind that it reflects the past and does not necessarily predict the future. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. ROCE is, after all, simply a snap shot of a single year. How cyclical is Millet Innovation? You can see for yourself by looking at this free graph of past earnings, revenue and cash flow.

### Millet Innovation's Current Liabilities And Their Impact On Its ROCE

Liabilities, such as supplier bills and bank overdrafts, are referred to as current liabilities if they 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 check the impact of this, we calculate if a company has high current liabilities relative to its total assets.

Millet Innovation has total assets of â‚¬19m and current liabilities of â‚¬4.0m. Therefore its current liabilities are equivalent to approximately 21% of its total assets. A fairly low level of current liabilities is not influencing the ROCE too much.

### Our Take On Millet Innovation's ROCE

Overall, Millet Innovation has a decent ROCE and could be worthy of further research. Millet Innovation 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.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.

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. Thank you for reading.