The Impact of Financial Indicators on the Valuation and Investment Strategies of Industrial Companies: SOCOMEC’S Case

This thesis examines the influence of financial indicators on valuation and investment decisions in industrial companies, focusing on SOCOMEC, a leading firm in the electrical sector. The study integrates theoretical insights and practical applications, offering a comprehensive analysis of SOCOMEC’s financial performance and strategic positioning. Its primary purpose is to provide actionable recommendations that enhance SOCOMEC’s operational and financial decision-making while contributing to a broader understanding of financial indicators and valuation methods in capital-intensive industries. The research began by establishing a theoretical foundation, exploring the definitions and applications of key financial indicators, including profitability, efficiency, liquidity, and leverage ratios. Valuation methods such as the Discounted Cash Flow DCF and CCA models were examined, highlighting their relevance to investment strategies. The study also investigated external factors influencing investment decisions, such as market conditions and regulatory dynamics, to contextualize SOCOMEC’s case. In addition, we looked at the specificities of the industrial sector, which mean that certain financial indicators need to be adapted to reflect the realities of the sector. The second part of the thesis applied these concepts to SOCOMEC through a detailed case study over the three last financial years (2021 to 2023). Key financial analyses included the computation and interpretation of profitability ratios like ROA, ROE, ROCE and ROIC. These ratios revealed a strong profitability position, but with a regression in 2022 due to economics disruptions. Efficiency ratios, including Asset Turnover and the analysis of Working Capital components, provided insights into SOCOMEC’s operational management that need to be improved especially for inventories. Moreover, leverage ratios like Debt-to-Equity and Interest Coverage Ratio highlighted challenges in financial structure and debt management. The valuation models estimated SOCOMEC’s Enterprise Value at €1.5 billion and Equity Value at €1.3 billion using DCF. This valuation was complemented by the CCA model based on multiples from peers like Schneider Electric, ABB, Eaton, and Siemens. These findings underscored the company’s strong revenue base but revealed areas for improvement in operational efficiency and financial management. Finally, the recommendations center on three critical areas. First, enhancing EBITDA involves optimizing operational costs, increasing revenue from high-margin products, and leveraging digital transformation to streamline processes. These steps aim to boost operational efficiency and align SOCOMEC’s profitability with industry standards, improving its EV/EBITDA multiple and investment appeal. Second, improving working capital management focuses on inventory optimization, accelerating receivables collection through automated tracking systems, and negotiating favorable terms with suppliers. These initiatives will enhance liquidity and reduce reliance on external financing. Lastly, addressing financial leverage involves reducing debt dependence through strategic refinancing, increased equity financing, and exploring alternative instruments like green bonds. These actions drive lower interest expenses, strengthen the balance sheet, and align SOCOMEC’s financial structure with sustainable growth goals. In conclusion, this thesis contributes to a better understanding of the role of financial indicators and valuation methods in the electrical sector. It highlights the importance of aligning financial metrics with strategic objectives to drive investment decisions and operational improvements. For SOCOMEC, the proposed strategies provide a roadmap to enhance profitability, liquidity, and financial stability, ensuring the company’s long-term competitiveness and growth in the evolving energy solutions market.