WASGAU Produktions & Handels (FRA:MSH) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, WASGAU Produktions & Handels (FRA:MSH) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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 WASGAU Produktions & Handels is:

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

0.038 = €11m ÷ (€362m - €71m) (Based on the trailing twelve months to June 2024).

Therefore, WASGAU Produktions & Handels has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Consumer Retailing industry average of 11%.

See 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're interested in investigating WASGAU Produktions & Handels' past further, check out this free graph covering WASGAU Produktions & Handels' past earnings, revenue and cash flow.

What Does the ROCE Trend For WASGAU Produktions & Handels Tell Us?

While there are companies with higher returns on capital out there, we still find the trend at WASGAU Produktions & Handels promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 46% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. 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.

In Conclusion...

To bring it all together, WASGAU Produktions & Handels has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 27% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 3 warning signs for WASGAU Produktions & Handels (1 is potentially serious) you should be aware of.

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.