Returns On Capital Signal Tricky Times Ahead For WASGAU Produktions & Handels (FRA:MSH)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. However, after investigating WASGAU Produktions & Handels (FRA:MSH), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on WASGAU Produktions & Handels is:

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

0.042 = €11m ÷ (€342m - €70m) (Based on the trailing twelve months to June 2023).

So, WASGAU Produktions & Handels has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 10%.

Check out our latest analysis for WASGAU Produktions & Handels

roce

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'd like to look at how WASGAU Produktions & Handels has performed in the past in other metrics, you can view this free graph of WASGAU Produktions & Handels' past earnings, revenue and cash flow.

How Are Returns Trending?

On the surface, the trend of ROCE at WASGAU Produktions & Handels doesn't inspire confidence. Over the last five years, returns on capital have decreased to 4.2% from 5.6% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On WASGAU Produktions & Handels' ROCE

Bringing it all together, while we're somewhat encouraged by WASGAU Produktions & Handels' reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 39% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

WASGAU Produktions & Handels does have some risks, we noticed 5 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.