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What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Fielmann Group (ETR:FIE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
What Is Return On Capital Employed (ROCE)?
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 Fielmann Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = €235m ÷ (€2.2b - €713m) (Based on the trailing twelve months to September 2024).
Therefore, Fielmann Group has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Specialty Retail industry average of 9.6% it's much better.
View our latest analysis for Fielmann Group
In the above chart we have measured Fielmann Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Fielmann Group .
How Are Returns Trending?
On the surface, the trend of ROCE at Fielmann Group doesn't inspire confidence. Around five years ago the returns on capital were 23%, but since then they've fallen to 15%. 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.
While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 32%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 15%. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.
In Conclusion...
In summary, despite lower returns in the short term, we're encouraged to see that Fielmann 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 36% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.