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If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in WASGAU Produktions & Handels' (FRA:MSH) returns on capital, so let's have a look.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for WASGAU Produktions & Handels, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.038 = €11m ÷ (€362m - €71m) (Based on the trailing twelve months to June 2024).
So, WASGAU Produktions & Handels has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 11%.
View our latest analysis for WASGAU Produktions & Handels
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'd like to look at how WASGAU Produktions & Handels has performed in the past in other metrics, you can view this free graph of WASGAU Produktions & Handels' past earnings, revenue and cash flow.
What Does the ROCE Trend For WASGAU Produktions & Handels Tell Us?
While there are companies with higher returns on capital out there, we still find the trend at WASGAU Produktions & Handels promising. The figures show that over the last five years, ROCE has grown 46% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line
To sum it up, WASGAU Produktions & Handels is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 36% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.