Yahoo Finance Bertrandt's (ETR:BDT) Returns On Capital Not Reflecting Well On The Business
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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Bertrandt (ETR:BDT) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Understanding 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 Bertrandt is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.069 = €53m ÷ (€956m - €189m) (Based on the trailing twelve months to December 2023).
Therefore, Bertrandt has an ROCE of 6.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.9%.
View our latest analysis for Bertrandt
In the above chart we have measured Bertrandt's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Bertrandt .
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at Bertrandt doesn't inspire confidence. Around five years ago the returns on capital were 11%, but since then they've fallen to 6.9%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.
The Bottom Line
In summary, despite lower returns in the short term, we're encouraged to see that Bertrandt is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 36% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
Bertrandt does have some risks, we noticed 2 warning signs (and 1 which can't be ignored) we think you should know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
