Yahoo Finance Investors Met With Slowing Returns on Capital At CEWE Stiftung KGaA (ETR:CWC)
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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. That's why when we briefly looked at CEWE Stiftung KGaA's (ETR:CWC) ROCE trend, we were pretty happy with what we saw.
Understanding Return On Capital Employed (ROCE)
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 CEWE Stiftung KGaA:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.19 = €88m ÷ (€586m - €120m) (Based on the trailing twelve months to March 2024).
Thus, CEWE Stiftung KGaA has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 11% generated by the Commercial Services industry.
View our latest analysis for CEWE Stiftung KGaA
Above you can see how the current ROCE for CEWE Stiftung KGaA compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering CEWE Stiftung KGaA for free.
What The Trend Of ROCE Can Tell Us
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 35% more capital in the last five years, and the returns on that capital have remained stable at 19%. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.
What We Can Learn From CEWE Stiftung KGaA's ROCE
The main thing to remember is that CEWE Stiftung KGaA has proven its ability to continually reinvest at respectable rates of return. And given the stock has only risen 36% over the last five years, we'd suspect the market is beginning to recognize these trends. So to determine if CEWE Stiftung KGaA is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.
CEWE Stiftung KGaA could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for CWC on our platform quite valuable.
While CEWE Stiftung KGaA may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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