This article is intended for those of you who are at the beginning of your investing journey and want to begin learning the link between Münchener Tierpark Hellabrunn AG (MUN:MTP)’s return fundamentals and stock market performance.
Buying Münchener Tierpark Hellabrunn makes you a partial owner of the company. Your equity share is granted in return for the capital provided to the business to operate, and in order for an investment to be successful the business has to create earnings from the funds that make up this capital. 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. Therefore, looking at how efficiently Münchener Tierpark Hellabrunn is able to use capital to create earnings will help us understand your potential return. Investors use many different metrics but the analysis below focuses on return on capital employed (ROCE). Let’s take a look at what it can tell us.View our latest analysis for Münchener Tierpark Hellabrunn
Calculating Return On Capital Employed for MTP
You only have a finite amount of capital to invest, so there are only so many companies that you can add to your portfolio. Therefore all else aside, your investment in a certain company represents a vote of confidence that the money used to buy the stock will grow larger than if invested elsewhere. So the business’ ability to grow the size of your capital is very important and can be assessed by comparing the return on capital you can get on your investment with a hurdle rate that depends on the other return possibilities you can identify. 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. Take a look at the formula box beneath:
ROCE Calculation for MTP
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = €157.32K ÷ (€62.28M – €3.22M) = 0.27%
MTP’s 0.27% ROCE means that for every €100 you invest, the company creates €0.3. Comparing this to a healthy 15% benchmark shows Münchener Tierpark Hellabrunn is currently unable to return a satisfactory amount to owners for the use of their capital, which isn’t good for investors who have forgone other potentially solid companies.
Then why have investors invested?
MTP doesn’t return an attractive amount on capital, but this will only continue if the company is unable to increase earnings or decrease current capital requirements. So it is important for investors to understand what is going on under the hood and look at how these variables have been behaving. Looking at the past 3 year period shows us that MTP boosted investor return on capital employed from -1.18%. With this, the current earnings of €157.32K improved from -€441.40K and the amount of capital employed also grew but by a proportionally lesser volume, which suggests the larger ROCE is due to a growth in earnings relative to capital requirements.
ROCE for MTP investors is below the desired level at the moment, however, the company has triggered an upward trend over the recent past which could signal an opportunity for a solid return on investment in the long term. It is important to know that ROCE does not dictate returns alone, so you need to consider other fundamentals in the business such as the management team to determine if an opportunity exists that isn’t made apparent by looking at past data. Münchener Tierpark Hellabrunn’s fundamentals can be explored with the links I’ve provided below if you are interested, otherwise you can start looking at other high-performing stocks.
- 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.