Stock Analysis

The Returns On Capital At CEWE Stiftung KGaA (ETR:CWC) Don't Inspire Confidence

XTRA:CWC
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after investigating CEWE Stiftung KGaA (ETR:CWC), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for CEWE Stiftung KGaA, this is the formula:

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

0.17 = €67m ÷ (€515m - €131m) (Based on the trailing twelve months to June 2022).

Therefore, CEWE Stiftung KGaA has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 9.0% it's much better.

Check out our latest analysis for CEWE Stiftung KGaA

roce
XTRA:CWC Return on Capital Employed November 11th 2022

Above you can see how the current ROCE for CEWE Stiftung KGaA compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering CEWE Stiftung KGaA here for free.

The Trend Of ROCE

In terms of CEWE Stiftung KGaA's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 17% from 25% five years ago. However it looks like CEWE Stiftung KGaA might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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.

Our Take On CEWE Stiftung KGaA's ROCE

Bringing it all together, while we're somewhat encouraged by CEWE Stiftung KGaA's reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 23% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

CEWE Stiftung KGaA could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.