Today we are going to look at Vente-Unique.com SA (EPA:ALVU) to see whether it might be an attractive investment prospect. To be precise, we'll consider its Return On Capital Employed (ROCE), as that will inform our view of the quality of the business.
First, we'll go over how we calculate ROCE. Next, we'll compare it to others in its industry. Finally, we'll look at how its current liabilities affect 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. Generally speaking a higher ROCE is better. In brief, it is a useful tool, but it is not without drawbacks. 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?
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 Vente-Unique.com:
0.29 = €5.0m ÷ (€39m - €22m) (Based on the trailing twelve months to September 2019.)
Therefore, Vente-Unique.com has an ROCE of 29%.
Does Vente-Unique.com Have A Good ROCE?
When making comparisons between similar businesses, investors may find ROCE useful. Vente-Unique.com's ROCE appears to be substantially greater than the 12% average in the Online Retail industry. We would consider this a positive, as it suggests it is using capital more effectively than other similar companies. Putting aside its position relative to its industry for now, in absolute terms, Vente-Unique.com's ROCE is currently very good.
You can click on the image below to see (in greater detail) how Vente-Unique.com's past growth compares to other companies.
When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. 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. Since the future is so important for investors, you should check out our free report on analyst forecasts for Vente-Unique.com.
How Vente-Unique.com's Current Liabilities Impact Its ROCE
Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.
Vente-Unique.com has current liabilities of €22m and total assets of €39m. As a result, its current liabilities are equal to approximately 57% of its total assets. While a high level of current liabilities boosts its ROCE, Vente-Unique.com's returns are still very good.
The Bottom Line On Vente-Unique.com's ROCE
In my book, this business could be worthy of further research. Vente-Unique.com 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 Vente-Unique.com 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 firstname.lastname@example.org. 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.
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