Yahoo Finance Here's What AURES Technologies S.A.'s (EPA:AURS) ROCE Can Tell Us
Today we are going to look at AURES Technologies S.A. (EPA:AURS) 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. Then we'll compare its ROCE to similar companies. And finally, we'll look at how its current liabilities are impacting its ROCE.
What is Return On Capital Employed (ROCE)?
ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. All else being equal, a better business will have a higher ROCE. 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?
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 AURES Technologies:
0.30 = €12m ÷ (€73m - €33m) (Based on the trailing twelve months to December 2018.)
Therefore, AURES Technologies has an ROCE of 30%.
View our latest analysis for AURES Technologies
Is AURES Technologies's ROCE Good?
When making comparisons between similar businesses, investors may find ROCE useful. In our analysis, AURES Technologies's ROCE is meaningfully higher than the 7.8% average in the Electronic industry. We would consider this a positive, as it suggests it is using capital more effectively than other similar companies. Setting aside the comparison to its industry for a moment, AURES Technologies's ROCE in absolute terms currently looks quite high.
You can see in the image below how AURES Technologies's ROCE compares to its industry. Click to see more on 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, after all, simply a snap shot of a single year. Future performance is what matters, and you can see analyst predictions in our free report on analyst forecasts for the company.
AURES Technologies'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. The ROCE equation subtracts current liabilities from capital employed, so a company with a lot of current liabilities appears to have less capital employed, and a higher ROCE than otherwise. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.
AURES Technologies has total assets of €73m and current liabilities of €33m. Therefore its current liabilities are equivalent to approximately 45% of its total assets. AURES Technologies has a medium level of current liabilities, boosting its ROCE somewhat.
What We Can Learn From AURES Technologies's ROCE
Still, it has a high ROCE, and may be an interesting prospect for further research. AURES Technologies looks strong on this analysis, but there are plenty of other companies that could be a good opportunity . Here is a free list of companies growing earnings rapidly.
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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.
