Will The ROCE Trend At Erlebnis Akademie (FRA:EAD) Continue?

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Erlebnis Akademie (FRA:EAD) and its trend of ROCE, we really liked what we saw.

What is 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. Analysts use this formula to calculate it for Erlebnis Akademie:

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

0.051 = €2.4m ÷ (€49m - €1.7m) (Based on the trailing twelve months to September 2020).

Therefore, Erlebnis Akademie has an ROCE of 5.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.5%.

See our latest analysis for Erlebnis Akademie

In the above chart we have measured Erlebnis Akademie's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Erlebnis Akademie's ROCE Trend?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 5.1%. The amount of capital employed has increased too, by 323%. So we're very much inspired by what we're seeing at Erlebnis Akademie thanks to its ability to profitably reinvest capital.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Erlebnis Akademie has. And a remarkable 153% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 2 warning signs with Erlebnis Akademie (at least 1 which can't be ignored) , and understanding these would certainly be useful.

While Erlebnis Akademie isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

When trading Erlebnis Akademie or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.