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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Francotyp-Postalia Holding (ETR:FPH) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Francotyp-Postalia Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.092 = €6.9m ÷ (€185m - €111m) (Based on the trailing twelve months to June 2023).
Therefore, Francotyp-Postalia Holding has an ROCE of 9.2%. On its own, that's a low figure but it's around the 7.7% average generated by the Commercial Services industry.
View our latest analysis for Francotyp-Postalia Holding
Above you can see how the current ROCE for Francotyp-Postalia Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is Francotyp-Postalia Holding's ROCE Trending?
We're pretty happy with how the ROCE has been trending at Francotyp-Postalia Holding. The figures show that over the last five years, returns on capital have grown by 31%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Francotyp-Postalia Holding appears to been achieving more with less, since the business is using 23% less capital to run its operation. Francotyp-Postalia Holding may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 60% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.