International School Augsburg -ISA- gemeinnützige (MUN:9JK) May Have Issues Allocating Its Capital

Did you know there are some financial metrics that can provide clues of a potential 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think International School Augsburg -ISA- gemeinnützige (MUN:9JK) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 International School Augsburg -ISA- gemeinnützige:

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%. In absolute terms, that's a low return and it also 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

In terms of International School Augsburg -ISA- gemeinnützige's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 2.8% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by International School Augsburg -ISA- gemeinnützige's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 23% in the last three years. 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.

International School Augsburg -ISA- gemeinnützige does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those can't be ignored...

While International School Augsburg -ISA- gemeinnützige 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.

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