There's Been No Shortage Of Growth Recently For Eigenheim Union 1898 Beteiligungs' (ETR:JZ6) Returns On Capital

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Eigenheim Union 1898 Beteiligungs' (ETR:JZ6) 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 Eigenheim Union 1898 Beteiligungs:

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

0.078 = €3.0m ÷ (€52m - €14m) (Based on the trailing twelve months to June 2023).

So, Eigenheim Union 1898 Beteiligungs has an ROCE of 7.8%. On its own, that's a low figure but it's around the 9.0% average generated by the Consumer Durables industry.

View our latest analysis for Eigenheim Union 1898 Beteiligungs

Above you can see how the current ROCE for Eigenheim Union 1898 Beteiligungs compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Eigenheim Union 1898 Beteiligungs .

How Are Returns Trending?

Eigenheim Union 1898 Beteiligungs has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses two years ago, but has managed to turn it around and as we saw earlier is now earning 7.8%, which is always encouraging. 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. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 27% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

What We Can Learn From Eigenheim Union 1898 Beteiligungs' ROCE

As discussed above, Eigenheim Union 1898 Beteiligungs appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Given the stock has declined 64% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 3 warning signs we've spotted with Eigenheim Union 1898 Beteiligungs (including 2 which shouldn't be ignored) .

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.