The content of this article will benefit those of you who are starting to educate yourself about investing in the stock market and want a simplistic look at the return on Münchener Tierpark Hellabrunn AG (MUN:MTP) stock.
Purchasing Münchener Tierpark Hellabrunn gives you an ownership stake in the company. As a result, your investment is being put to work to fund operations and if you want to earn an attractive return on your investment, the business needs to be making an adequate amount of money from the funds you provide. This is because the actual cash flow generated by the business dictates the potential for income (dividends) and capital appreciation (price increases), which are the two ways to achieve positive returns when buying a stock. To understand Münchener Tierpark Hellabrunn’s capital returns we will look at a useful metric called return on capital employed. This will tell us if the company is growing your capital and placing you in good stead to sell your shares at a profit.
What is Return on Capital Employed (ROCE)?
You only have a finite amount of capital to invest, so there are only so many companies that you can add to your portfolio. Accordingly, before you invest you need to assess the capital returns that the company has produced with reference to a certain benchmark to ensure that you are confident in the business’ ability to grow your capital at a level that grants an investment over other companies. A good metric to use is return on capital employed (ROCE), which helps us gauge how much income can be created from the funds needed to operate the business. This metric will tell us if Münchener Tierpark Hellabrunn is good at growing investor capital. I have calculated Münchener Tierpark Hellabrunn’s ROCE for you below:
ROCE Calculation for MTP
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = €865.52k ÷ (€66.65m – €4.41m) = 1.39%
As you can see, MTP earned €1.4 from every €100 you invested over the previous twelve months. This shows Münchener Tierpark Hellabrunn provides an unsatisfying capital return that is well below the 15% ROCE that is typically considered to be a strong benchmark. Nevertheless, if MTP is clever with their reinvestments or dividend payments, investors can still grow their capital although to a poor extent.
Why is this the case?
The underperforming ROCE is not ideal for Münchener Tierpark Hellabrunn investors if the company is unable to turn things around. But if the underlying variables (earnings and capital employed) improve, MTP’s ROCE may increase, in which case your portfolio could benefit from holding the company. Therefore, investors need to understand the trend of the inputs in the formula above, so that they can see if there is an opportunity to invest. Three years ago, MTP’s ROCE was 6.06%, which means the company’s capital returns have worsened. The movement in the earnings variable over this time shows a fall from €2.87m to €865.52k whilst capital employed has increased due to a hike in the level of total assets employed , which means the company’s ROCE has shrunk as a result of falling earnings and simultaneous increases in capital requirements.
MTP’s investors have experienced a downward trend in ROCE and it is currently at a level that makes us question whether the company is capable of providing a suitable return on investment. But don’t forget, return on capital employed is a static metric that should be looked at in conjunction with other fundamental indicators like future prospects and management ability. If you’re building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate MTP or move on to other alternatives.
- Future Outlook: What are well-informed industry analysts predicting for MTP’s future growth? Take a look at our free research report of analyst consensus for MTP’s outlook.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Münchener Tierpark Hellabrunn’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.