Will Wienerberger's (VIE:WIE) Growth In ROCE Persist?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. So when we looked at Wienerberger (VIE:WIE) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Wienerberger, this is the formula:

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

0.095 = €305m ÷ (€4.3b - €1.1b) (Based on the trailing twelve months to December 2020).

Therefore, Wienerberger has an ROCE of 9.5%. In absolute terms, that's a low return, but it's much better than the Basic Materials industry average of 7.3%.

View our latest analysis for Wienerberger

In the above chart we have measured Wienerberger's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Wienerberger here for free.

What Can We Tell From Wienerberger's ROCE Trend?

Wienerberger's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 67% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Wienerberger's ROCE

To sum it up, Wienerberger is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 102% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 3 warning signs facing Wienerberger that you might find interesting.

While Wienerberger 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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