Today we'll look at Dedalus France S.A. (EPA:DEDAL) 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. Second, we'll look at its ROCE compared to similar companies. Then we'll determine how its current liabilities are affecting its ROCE.
Return On Capital Employed (ROCE): What is it?
ROCE measures the amount of pre-tax profits a company can generate from the capital employed in its business. All else being equal, a better business will have a higher ROCE. 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 Dedalus France:
0.023 = €1.2m ÷ (€75m - €23m) (Based on the trailing twelve months to December 2018.)
So, Dedalus France has an ROCE of 2.3%.
See our latest analysis for Dedalus France
Does Dedalus France Have A Good ROCE?
When making comparisons between similar businesses, investors may find ROCE useful. In this analysis, Dedalus France's ROCE appears meaningfully below the 16% average reported by the Healthcare Services industry. This could be seen as a negative, as it suggests some competitors may be employing their capital more efficiently. Regardless of how Dedalus France stacks up against its industry, its ROCE in absolute terms is quite low (especially compared to a bank account). It is likely that there are more attractive prospects out there.
Dedalus France reported an ROCE of 2.3% -- better than 3 years ago, when the company didn't make a profit. That implies the business has been improving. The image below shows how Dedalus France's ROCE compares to its industry, and you can click it to see more detail on its past growth.
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 only a point-in-time measure. Future performance is what matters, and you can see analyst predictions in our free report on analyst forecasts for the company.