Yahoo Finance Why You Should Care About CEWE Stiftung KGaA's (ETR:CWC) Strong Returns On Capital
What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of CEWE Stiftung KGaA (ETR:CWC) looks attractive right now, so lets see what the trend of returns can tell us.
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. To calculate this metric for CEWE Stiftung KGaA, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = €81m ÷ (€535m - €125m) (Based on the trailing twelve months to September 2023).
Thus, CEWE Stiftung KGaA has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 7.5%.
See our latest analysis for CEWE Stiftung KGaA
In the above chart we have measured CEWE Stiftung KGaA'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 report for CEWE Stiftung KGaA.
What Does the ROCE Trend For CEWE Stiftung KGaA Tell Us?
It's hard not to be impressed by CEWE Stiftung KGaA's returns on capital. The company has consistently earned 20% for the last five years, and the capital employed within the business has risen 64% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If CEWE Stiftung KGaA can keep this up, we'd be very optimistic about its future.
One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 23% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.
The Bottom Line On CEWE Stiftung KGaA's ROCE
CEWE Stiftung KGaA has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Therefore it's no surprise that shareholders have earned a respectable 77% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.
CEWE Stiftung KGaA is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.
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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.
