Returns At Regenbogen (FRA:RGB) Are On The Way Up

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. So when we looked at Regenbogen (FRA:RGB) and its trend of ROCE, we really liked what we saw.

Understanding 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 Regenbogen:

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

0.11 = €3.5m ÷ (€32m - €1.6m) (Based on the trailing twelve months to December 2020).

Therefore, Regenbogen has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

See our latest analysis for Regenbogen

Historical performance is a great place to start when researching a stock so above you can see the gauge for Regenbogen's ROCE against it's prior returns. If you're interested in investigating Regenbogen's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Regenbogen's ROCE Trend?

Investors would be pleased with what's happening at Regenbogen. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 32%. So we're very much inspired by what we're seeing at Regenbogen thanks to its ability to profitably reinvest capital.

The Key Takeaway

To sum it up, Regenbogen has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 244% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 3 warning signs facing Regenbogen that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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