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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Waberer's International Nyrt (BST:3WB) so let's look a bit deeper.
Understanding 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. Analysts use this formula to calculate it for Waberer's International Nyrt:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.044 = €23m ÷ (€704m - €189m) (Based on the trailing twelve months to September 2024).
So, Waberer's International Nyrt has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 7.8%.
View our latest analysis for Waberer's International Nyrt
In the above chart we have measured Waberer's International Nyrt'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 Waberer's International Nyrt .
What Can We Tell From Waberer's International Nyrt's ROCE Trend?
We're delighted to see that Waberer's International Nyrt is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 4.4%, which is always encouraging. While returns have increased, the amount of capital employed by Waberer's International Nyrt has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.
What We Can Learn From Waberer's International Nyrt's ROCE
To bring it all together, Waberer's International Nyrt has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.