Yahoo Finance Returns On Capital At Adecco Group (VTX:ADEN) Paint A Concerning Picture
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Adecco Group (VTX:ADEN) and its ROCE trend, we weren't exactly thrilled.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Adecco Group:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.084 = €680m ÷ (€13b - €5.2b) (Based on the trailing twelve months to December 2022).
Thus, Adecco Group has an ROCE of 8.4%. In absolute terms, that's a low return and it also under-performs the Professional Services industry average of 14%.
See our latest analysis for Adecco Group
Above you can see how the current ROCE for Adecco Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Adecco Group here for free.
How Are Returns Trending?
When we looked at the ROCE trend at Adecco Group, we didn't gain much confidence. Around five years ago the returns on capital were 21%, but since then they've fallen to 8.4%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Bottom Line On Adecco Group's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that Adecco Group is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 40% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
If you'd like to know more about Adecco Group, we've spotted 4 warning signs, and 2 of them make us uncomfortable.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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