Mühlbauer Holding (ETR:MUB) Is Doing The Right Things To Multiply Its Share Price

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Mühlbauer Holding's (ETR:MUB) returns on capital, so let's have a look.

Understanding 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 Mühlbauer Holding:

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

0.18 = €76m ÷ (€425m - €7.2k) (Based on the trailing twelve months to June 2021).

So, Mühlbauer Holding has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 7.6% generated by the Machinery industry.

See our latest analysis for Mühlbauer Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mühlbauer Holding's ROCE against it's prior returns. If you'd like to look at how Mühlbauer Holding has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Mühlbauer Holding's ROCE Trending?

Investors would be pleased with what's happening at Mühlbauer Holding. The data shows that returns on capital have increased substantially over the last five years to 18%. 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 40%. 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.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Mühlbauer Holding has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 70% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Mühlbauer Holding, we've discovered 2 warning signs that you should be aware of.

While Mühlbauer Holding 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. 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.
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