WASGAU Produktions & Handels' (FRA:MSH) Returns Have Hit A Wall

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at WASGAU Produktions & Handels (FRA:MSH), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

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)

0.037 = €10m ÷ (€359m - €79m) (Based on the trailing twelve months to December 2023).

Therefore, WASGAU Produktions & Handels has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 11%.

See our latest analysis for WASGAU Produktions & Handels

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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.

So How Is WASGAU Produktions & Handels' ROCE Trending?

The returns on capital haven't changed much for WASGAU Produktions & Handels in recent years. The company has employed 91% more capital in the last five years, and the returns on that capital have remained stable at 3.7%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On WASGAU Produktions & Handels' ROCE

In conclusion, WASGAU Produktions & Handels has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has declined 30% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think WASGAU Produktions & Handels has the makings of a multi-bagger.

WASGAU Produktions & Handels does have some risks though, and we've spotted 1 warning sign for WASGAU Produktions & Handels that you might be interested in.

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.