What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Berentzen-Gruppe (ETR:BEZ) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
Understanding Return On Capital Employed (ROCE)
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Berentzen-Gruppe, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.084 = €5.0m ÷ (€146m - €87m) (Based on the trailing twelve months to December 2022).
Therefore, Berentzen-Gruppe has an ROCE of 8.4%. On its own that's a low return, but compared to the average of 6.4% generated by the Beverage industry, it's much better.
See our latest analysis for Berentzen-Gruppe
Above you can see how the current ROCE for Berentzen-Gruppe 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 Berentzen-Gruppe here for free.
How Are Returns Trending?
There hasn't been much to report for Berentzen-Gruppe's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Berentzen-Gruppe doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Berentzen-Gruppe has been paying out a decent 51% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
On a side note, Berentzen-Gruppe's current liabilities are still rather high at 59% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.