The Return Trends At KSB SE KGaA (ETR:KSB) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at KSB SE KGaA (ETR:KSB) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for KSB SE KGaA:

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

0.12 = €204m ÷ (€2.5b - €895m) (Based on the trailing twelve months to June 2023).

Thus, KSB SE KGaA has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 11% generated by the Machinery industry.

Check out our latest analysis for KSB SE KGaA

In the above chart we have measured KSB SE KGaA'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 KSB SE KGaA here for free.

What Does the ROCE Trend For KSB SE KGaA Tell Us?

KSB SE KGaA is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 182% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

In Conclusion...

To sum it up, KSB SE KGaA is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 168% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if KSB SE KGaA can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing KSB SE KGaA that you might find interesting.

While KSB SE KGaA may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.