AGRANA Beteiligungs-Aktiengesellschaft (VIE:AGR) Will Be Hoping To Turn Its Returns On Capital Around

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at AGRANA Beteiligungs-Aktiengesellschaft (VIE:AGR), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on AGRANA Beteiligungs-Aktiengesellschaft is:

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

0.031 = €60m ÷ (€2.7b - €750m) (Based on the trailing twelve months to November 2021).

Therefore, AGRANA Beteiligungs-Aktiengesellschaft has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Food industry average of 8.1%.

See our latest analysis for AGRANA Beteiligungs-Aktiengesellschaft

In the above chart we have measured AGRANA Beteiligungs-Aktiengesellschaft'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 AGRANA Beteiligungs-Aktiengesellschaft.

The Trend Of ROCE

When we looked at the ROCE trend at AGRANA Beteiligungs-Aktiengesellschaft, we didn't gain much confidence. To be more specific, ROCE has fallen from 11% over the last five years. However it looks like AGRANA Beteiligungs-Aktiengesellschaft might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

What We Can Learn From AGRANA Beteiligungs-Aktiengesellschaft's ROCE

Bringing it all together, while we're somewhat encouraged by AGRANA Beteiligungs-Aktiengesellschaft's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 24% over the last five years, investors may not be too optimistic on this trend improving either. 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.

Like most companies, AGRANA Beteiligungs-Aktiengesellschaft does come with some risks, and we've found 1 warning sign that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.