The Return Trends At Mercedes-Benz Group (ETR:MBG) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. 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 Mercedes-Benz Group (ETR:MBG) 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. The formula for this calculation on Mercedes-Benz Group is:

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

0.10 = €17b ÷ (€260b - €88b) (Based on the trailing twelve months to December 2022).

Thus, Mercedes-Benz Group has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Auto industry average of 8.4% it's much better.

Check out our latest analysis for Mercedes-Benz Group

In the above chart we have measured Mercedes-Benz Group'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 Mercedes-Benz Group here for free.

The Trend Of ROCE

Mercedes-Benz Group's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 37% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

As discussed above, Mercedes-Benz Group appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 60% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Mercedes-Benz Group we've found 3 warning signs (2 can't be ignored!) that you should be aware of before investing here.

While Mercedes-Benz Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.