The Return Trends At WASGAU Produktions & Handels (FRA:MSH) Look Promising

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, WASGAU Produktions & Handels (FRA:MSH) looks quite promising in regards to its trends of return on capital.

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

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 WASGAU Produktions & Handels:

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

0.043 = €13m ÷ (€382m - €80m) (Based on the trailing twelve months to December 2024).

So, WASGAU Produktions & Handels has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 12%.

View our latest analysis for WASGAU Produktions & Handels

Historical performance is a great place to start when researching a stock so above you can see the gauge for WASGAU Produktions & Handels' ROCE against it's prior returns. If you'd like to look at how WASGAU Produktions & Handels has performed in the past in other metrics, you can view this free graph of WASGAU Produktions & Handels' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

While there are companies with higher returns on capital out there, we still find the trend at WASGAU Produktions & Handels promising. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 55% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From WASGAU Produktions & Handels' ROCE

To bring it all together, WASGAU Produktions & Handels has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 45% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 4 warning signs for WASGAU Produktions & Handels (3 are concerning) you should be aware of.

While WASGAU Produktions & Handels 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.