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If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Schwälbchen Molkerei Jakob Berz (FRA:SMB) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Schwälbchen Molkerei Jakob Berz:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = €8.5m ÷ (€84m - €36m) (Based on the trailing twelve months to June 2024).
Therefore, Schwälbchen Molkerei Jakob Berz has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 13% generated by the Food industry.
See our latest analysis for Schwälbchen Molkerei Jakob Berz
Historical performance is a great place to start when researching a stock so above you can see the gauge for Schwälbchen Molkerei Jakob Berz's ROCE against it's prior returns. If you're interested in investigating Schwälbchen Molkerei Jakob Berz's past further, check out this free graph covering Schwälbchen Molkerei Jakob Berz's past earnings, revenue and cash flow.
What Can We Tell From Schwälbchen Molkerei Jakob Berz's ROCE Trend?
Investors would be pleased with what's happening at Schwälbchen Molkerei Jakob Berz. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 20% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
Another thing to note, Schwälbchen Molkerei Jakob Berz has a high ratio of current liabilities to total assets of 43%. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.
In Conclusion...
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Schwälbchen Molkerei Jakob Berz has. Since the stock has only returned 7.8% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.