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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. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Mineralbrunnen Überkingen-Teinach GmbH KGaA (FRA:MUT), we weren't too hopeful.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Mineralbrunnen Überkingen-Teinach GmbH KGaA is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.063 = €7.0m ÷ (€146m - €34m) (Based on the trailing twelve months to June 2024).
So, Mineralbrunnen Überkingen-Teinach GmbH KGaA has an ROCE of 6.3%. On its own, that's a low figure but it's around the 7.5% average generated by the Beverage industry.
See our latest analysis for Mineralbrunnen Überkingen-Teinach GmbH KGaA
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Mineralbrunnen Überkingen-Teinach GmbH KGaA's past further, check out this free graph covering Mineralbrunnen Überkingen-Teinach GmbH KGaA's past earnings, revenue and cash flow.
So How Is Mineralbrunnen Überkingen-Teinach GmbH KGaA's ROCE Trending?
We are a bit worried about the trend of returns on capital at Mineralbrunnen Überkingen-Teinach GmbH KGaA. To be more specific, the ROCE was 8.2% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Mineralbrunnen Überkingen-Teinach GmbH KGaA to turn into a multi-bagger.
While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 23%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 6.3%. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.