International School Augsburg -ISA- gemeinnützige (FRA:9JK) Is Reinvesting At Lower Rates Of Return

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. In light of that, when we looked at International School Augsburg -ISA- gemeinnützige (FRA:9JK) and its ROCE trend, we weren't exactly thrilled.

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 International School Augsburg -ISA- gemeinnützige is:

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

0.013 = €128k ÷ (€10m - €655k) (Based on the trailing twelve months to February 2024).

So, International School Augsburg -ISA- gemeinnützige has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Consumer Services industry average of 13%.

Check out our latest analysis for International School Augsburg -ISA- gemeinnützige

In the above chart we have measured International School Augsburg -ISA- gemeinnützige'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 analyst report for International School Augsburg -ISA- gemeinnützige .

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at International School Augsburg -ISA- gemeinnützige, we didn't gain much confidence. To be more specific, ROCE has fallen from 2.8% over the last five years. However it looks like International School Augsburg -ISA- gemeinnützige might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

To conclude, we've found that International School Augsburg -ISA- gemeinnützige is reinvesting in the business, but returns have been falling. And in the last three years, the stock has given away 37% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a final note, we found 2 warning signs for International School Augsburg -ISA- gemeinnützige (1 makes us a bit uncomfortable) you should be aware of.

While International School Augsburg -ISA- gemeinnützige 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.