Returns At SGL Carbon (ETR:SGL) Are On The Way Up

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. So on that note, SGL Carbon (ETR:SGL) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on SGL Carbon is:

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

0.073 = €89m ÷ (€1.5b - €258m) (Based on the trailing twelve months to June 2024).

Therefore, SGL Carbon has an ROCE of 7.3%. On its own, that's a low figure but it's around the 8.7% average generated by the Electrical industry.

See our latest analysis for SGL Carbon

In the above chart we have measured SGL Carbon's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for SGL Carbon .

The Trend Of ROCE

We're delighted to see that SGL Carbon is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 7.3% which is no doubt a relief for some early shareholders. In regards to capital employed, SGL Carbon is using 21% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.

In Conclusion...

From what we've seen above, SGL Carbon has managed to increase it's returns on capital all the while reducing it's capital base. Considering the stock has delivered 3.4% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

While SGL Carbon looks impressive, no company is worth an infinite price. The intrinsic value infographic for SGL helps visualize whether it is currently trading for a fair price.

While SGL Carbon 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.