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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Ströer SE KGaA (ETR:SAX) looks quite promising in regards to its trends of return on capital.
Our free stock report includes 2 warning signs investors should be aware of before investing in Ströer SE KGaA. Read for free now.
What Is 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. The formula for this calculation on Ströer SE KGaA is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = €278m ÷ (€2.9b - €857m) (Based on the trailing twelve months to December 2024).
Therefore, Ströer SE KGaA has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 8.9% it's much better.
See our latest analysis for Ströer SE KGaA
In the above chart we have measured Ströer SE KGaA's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Ströer SE KGaA for free.
What Does the ROCE Trend For Ströer SE KGaA Tell Us?
Ströer SE KGaA's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 95% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Bottom Line On Ströer SE KGaA's ROCE
To sum it up, Ströer SE KGaA is collecting higher returns from the same amount of capital, and that's impressive. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 9.6% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
Like most companies, Ströer SE KGaA does come with some risks, and we've found 2 warning signs that you should be aware of.