The 22% Return On Capital At SW Umwelttechnik Stoiser & Wolschner (VIE:SWUT) Got Our Attention

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So when we looked at the ROCE trend of SW Umwelttechnik Stoiser & Wolschner (VIE:SWUT) we really liked what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for SW Umwelttechnik Stoiser & Wolschner:

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

0.22 = €14m ÷ (€93m - €28m) (Based on the trailing twelve months to June 2020).

Therefore, SW Umwelttechnik Stoiser & Wolschner has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Construction industry average of 10%.

Check out our latest analysis for SW Umwelttechnik Stoiser & Wolschner

Historical performance is a great place to start when researching a stock so above you can see the gauge for SW Umwelttechnik Stoiser & Wolschner's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of SW Umwelttechnik Stoiser & Wolschner, check out these free graphs here.

How Are Returns Trending?

SW Umwelttechnik Stoiser & Wolschner is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 22%. Basically the business is earning more per dollar of capital invested and in addition to that, 36% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 30%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that SW Umwelttechnik Stoiser & Wolschner has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On SW Umwelttechnik Stoiser & Wolschner's ROCE

To sum it up, SW Umwelttechnik Stoiser & Wolschner has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

SW Umwelttechnik Stoiser & Wolschner does have some risks though, and we've spotted 4 warning signs for SW Umwelttechnik Stoiser & Wolschner that you might be interested in.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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