Slowing Rates Of Return At Schloss Wachenheim (ETR:SWA) Leave Little Room For Excitement

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Schloss Wachenheim (ETR:SWA) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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. Analysts use this formula to calculate it for Schloss Wachenheim:

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

0.097 = €29m ÷ (€485m - €188m) (Based on the trailing twelve months to December 2023).

Thus, Schloss Wachenheim has an ROCE of 9.7%. On its own that's a low return, but compared to the average of 5.9% generated by the Beverage industry, it's much better.

See our latest analysis for Schloss Wachenheim

roce

Above you can see how the current ROCE for Schloss Wachenheim compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Schloss Wachenheim .

So How Is Schloss Wachenheim's ROCE Trending?

In terms of Schloss Wachenheim's historical ROCE trend, it doesn't exactly demand attention. The company has employed 26% more capital in the last five years, and the returns on that capital have remained stable at 9.7%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Schloss Wachenheim's ROCE

Long story short, while Schloss Wachenheim has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 2.0% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Schloss Wachenheim does have some risks though, and we've spotted 1 warning sign for Schloss Wachenheim that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.