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Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. Having said that, after a brief look, Berentzen-Gruppe (ETR:BEZ) we aren't filled with optimism, but let's investigate further.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)
0.057 = €3.7m ÷ (€134m - €70m) (Based on the trailing twelve months to June 2024).
Thus, Berentzen-Gruppe has an ROCE of 5.7%. On its own, that's a low figure but it's around the 7.1% average generated by the Beverage industry.
Check out 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 for free.
What Can We Tell From Berentzen-Gruppe's ROCE Trend?
We are a bit worried about the trend of returns on capital at Berentzen-Gruppe. About five years ago, returns on capital were 9.9%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Berentzen-Gruppe to turn into a multi-bagger.
On a separate but related note, it's important to know that Berentzen-Gruppe has a current liabilities to total assets ratio of 52%, which we'd consider pretty high. 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.