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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at Erlebnis Akademie (FRA:EAD) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Erlebnis Akademie:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0049 = €26m ÷ (€5.5b - €182m) (Based on the trailing twelve months to September 2024).
Therefore, Erlebnis Akademie has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 4.2%.
View our latest analysis for Erlebnis Akademie
In the above chart we have measured Erlebnis Akademie'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 Erlebnis Akademie .
What The Trend Of ROCE Can Tell Us
In terms of Erlebnis Akademie's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 0.5% from 11% five years ago. 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.
Our Take On Erlebnis Akademie's ROCE
While returns have fallen for Erlebnis Akademie in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. But since the stock has dived 80% in the last five years, there could be other drivers that are influencing the business' outlook. Regardless, reinvestment can pay off in the long run, so we think astute investors may want to look further into this stock.
One final note, you should learn about the 2 warning signs we've spotted with Erlebnis Akademie (including 1 which shouldn't be ignored) .