Stock Analysis

The Return Trends At Bayerische Motoren Werke (ETR:BMW) Look Promising

XTRA:BMW
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Bayerische Motoren Werke ( ETR:BMW ) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Bayerische Motoren Werke, this is the formula:

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

0.097 = €16b ÷ (€248b - €83b) (Based on the trailing twelve months to March 2023) .

So, Bayerische Motoren Werke has an ROCE of 9.7%. Even though it's in line with the industry average of 9.7%, it's still a low return by itself.

Check out our latest analysis for Bayerische Motoren Werke

roce
XTRA:BMW Return on Capital Employed May 25th 2023

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 .

SWOT Analysis for Bayerische Motoren Werke

Strength
  • Debt is well covered by earnings and cashflows.
  • Dividends are covered by earnings and cash flows.
  • Dividend is in the top 25% of dividend payers in the market.
Weakness
  • Earnings declined over the past year.
Opportunity
  • Annual earnings are forecast to grow for the next 3 years.
  • Good value based on P/E ratio compared to estimated Fair P/E ratio.
Threat
  • Annual earnings are forecast to grow slower than the German market.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 9.7%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 33%. So we're very much inspired by what we're seeing at Bayerische Motoren Werke thanks to its ability to profitably reinvest capital.

The Bottom Line On Bayerische Motoren Werke's ROCE

In summary, it's great to see that Bayerische Motoren Werke can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a solid 58% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Bayerische Motoren Werke can keep these trends up, it could have a bright future ahead.

Bayerische Motoren Werke does have some risks though, and we've spotted 3 warning signs for Bayerische Motoren Werke that you might be interested in.

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.

Valuation is complex, but we're here to simplify it.

Discover if Bayerische Motoren Werke might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.