These Return Metrics Don't Make Plastiques du Val de Loire (EPA:PVL) Look Too Strong

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. Having said that, after a brief look, Plastiques du Val de Loire (EPA:PVL) we aren't filled with optimism, but let's investigate further.

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Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Plastiques du Val de Loire, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.015 = €6.3m ÷ (€746m - €332m) (Based on the trailing twelve months to March 2025).

Therefore, Plastiques du Val de Loire has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 7.9%.

See our latest analysis for Plastiques du Val de Loire

Above you can see how the current ROCE for Plastiques du Val de Loire 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 analyst report for Plastiques du Val de Loire .

So How Is Plastiques du Val de Loire's ROCE Trending?

There is reason to be cautious about Plastiques du Val de Loire, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 6.9% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Plastiques du Val de Loire to turn into a multi-bagger.

On a separate but related note, it's important to know that Plastiques du Val de Loire has a current liabilities to total assets ratio of 44%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Unsurprisingly then, the stock has dived 71% over the last five years, so investors are recognizing these changes and don't like the company's prospects. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Plastiques du Val de Loire does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

While Plastiques du Val de Loire isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.