Schwager (SNSE:SCHWAGER) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Schwager (SNSE:SCHWAGER) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.14 = CL$4.4b ÷ (CL$45b - CL$14b) (Based on the trailing twelve months to September 2020).

So, Schwager has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Commercial Services industry average of 12%.

See our latest analysis for Schwager

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Schwager, check out these free graphs here.

So How Is Schwager's ROCE Trending?

The trends we've noticed at Schwager are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 47% 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.

What We Can Learn From Schwager's ROCE

All in all, it's terrific to see that Schwager is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 22% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 5 warning signs for Schwager (2 are significant) you should be aware of.

While Schwager 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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