Mühlbauer Holding (ETR:MUB) Will Be Hoping To Turn Its Returns On Capital Around

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at Mühlbauer Holding (ETR:MUB) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.085 = €40m ÷ (€468m - €25k) (Based on the trailing twelve months to June 2022).

So, Mühlbauer Holding has an ROCE of 8.5%. In absolute terms, that's a low return but it's around the Machinery industry average of 9.7%.

View 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're interested in investigating Mühlbauer Holding's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Mühlbauer Holding's ROCE Trend?

On the surface, the trend of ROCE at Mühlbauer Holding doesn't inspire confidence. Over the last five years, returns on capital have decreased to 8.5% from 16% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Mühlbauer Holding's ROCE

Bringing it all together, while we're somewhat encouraged by Mühlbauer Holding's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 94% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

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.