If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, the ROCE of Schwager (SNSE:SCHWAGER) looks decent, right now, so lets see what the trend of returns can tell us.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Schwager is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = CL$3.4b ÷ (CL$50b - CL$17b) (Based on the trailing twelve months to September 2022).
Thus, Schwager has an ROCE of 10%. In isolation, that's a pretty standard return but against the Commercial Services industry average of 14%, it's not as good.
View our latest analysis for Schwager
Historical performance is a great place to start when researching a stock so above you can see the gauge for Schwager's ROCE against it's prior returns. If you're interested in investigating Schwager's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Schwager Tell Us?
The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 24% in that time. 10% is a pretty standard return, and it provides some comfort knowing that Schwager has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
The Bottom Line
To sum it up, Schwager has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 21%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Schwager (of which 2 shouldn't be ignored!) that you should know about.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
About SNSE:SCHWAGER
Flawless balance sheet and good value.
