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Schwälbchen Molkerei Jakob Berz (FRA:SMB) Is Doing The Right Things To Multiply Its Share Price

editorial-team@simplywallst.com (Simply Wall St)
·3-min read

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Schwälbchen Molkerei Jakob Berz (FRA:SMB) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Schwälbchen Molkerei Jakob Berz is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.16 = €7.1m ÷ (€77m - €32m) (Based on the trailing twelve months to December 2023).

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So, Schwälbchen Molkerei Jakob Berz has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 13% it's much better.

Check out our latest analysis for Schwälbchen Molkerei Jakob Berz

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While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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?

Schwälbchen Molkerei Jakob Berz's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 27% in that same time. 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.

Another thing to note, Schwälbchen Molkerei Jakob Berz has a high ratio of current liabilities to total assets of 41%. 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.

The Bottom Line On Schwälbchen Molkerei Jakob Berz's ROCE

To bring it all together, Schwälbchen Molkerei Jakob Berz has done well to increase the returns it's generating from its capital employed. And with a respectable 47% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Schwälbchen Molkerei Jakob Berz (of which 1 is significant!) that you should know about.

While Schwälbchen Molkerei Jakob Berz isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com