Will Rosenbauer International (VIE:ROS) Multiply In Value Going Forward?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Rosenbauer International (VIE:ROS) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

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 Rosenbauer International, this is the formula:

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

0.10 = €54m ÷ (€1.0b - €469m) (Based on the trailing twelve months to March 2020).

Therefore, Rosenbauer International has an ROCE of 10.0%. On its own, that's a low figure but it's around the 8.5% average generated by the Machinery industry.

See our latest analysis for Rosenbauer International

In the above chart we have a measured Rosenbauer International's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

In terms of Rosenbauer International's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 10.0% from 16% five years ago. 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.

On a side note, Rosenbauer International has done well to pay down its current liabilities to 46% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE. Keep in mind 46% is still pretty high, so those risks are still somewhat prevalent.

What We Can Learn From Rosenbauer International's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Rosenbauer International. And there could be an opportunity here if other metrics look good too, because the stock has declined 52% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Rosenbauer International does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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

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This article by Simply Wall St is general in nature. 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.
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