Returns At Deutsche Eigenheim Union (ETR:JZ6) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Deutsche Eigenheim Union (ETR:JZ6) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Deutsche Eigenheim Union is:

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

0.06 = €2.3m ÷ (€44m - €4.6m) (Based on the trailing twelve months to December 2022).

Therefore, Deutsche Eigenheim Union has an ROCE of 6.0%. On its own that's a low return, but compared to the average of 4.9% generated by the Consumer Durables industry, it's much better.

View our latest analysis for Deutsche Eigenheim Union

In the above chart we have measured Deutsche Eigenheim Union'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 report for Deutsche Eigenheim Union.

SWOT Analysis for Deutsche Eigenheim Union

What Does the ROCE Trend For Deutsche Eigenheim Union Tell Us?

Shareholders will be relieved that Deutsche Eigenheim Union has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 6.0% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

The Bottom Line

To bring it all together, Deutsche Eigenheim Union has done well to increase the returns it's generating from its capital employed. Given the stock has declined 50% in the last year, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One final note, you should learn about the 2 warning signs we've spotted with Deutsche Eigenheim Union (including 1 which can't be ignored) .

While Deutsche Eigenheim Union 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.