Returns On Capital At Bayerische Motoren Werke (ETR:BMW) Have Stalled

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Although, when we looked at Bayerische Motoren Werke (ETR:BMW), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Bayerische Motoren Werke:

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

0.071 = €12b ÷ (€255b - €85b) (Based on the trailing twelve months to June 2022).

So, Bayerische Motoren Werke has an ROCE of 7.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.0%.

Check out our latest analysis for Bayerische Motoren Werke

Above you can see how the current ROCE for Bayerische Motoren Werke compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Bayerische Motoren Werke's ROCE Trend?

There are better returns on capital out there than what we're seeing at Bayerische Motoren Werke. The company has employed 38% more capital in the last five years, and the returns on that capital have remained stable at 7.1%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In summary, Bayerische Motoren Werke has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 3.4% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a final note, we found 4 warning signs for Bayerische Motoren Werke (2 are a bit concerning) you should be aware of.

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.