Berentzen-Gruppe's (ETR:BEZ) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Berentzen-Gruppe (ETR:BEZ) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Berentzen-Gruppe, this is the formula:

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

0.066 = €4.4m ÷ (€134m - €67m) (Based on the trailing twelve months to December 2020).

So, Berentzen-Gruppe has an ROCE of 6.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.7%.

View our latest analysis for Berentzen-Gruppe

In the above chart we have measured Berentzen-Gruppe'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 The Trend Of ROCE Can Tell Us

We're pretty happy with how the ROCE has been trending at Berentzen-Gruppe. We found that the returns on capital employed over the last five years have risen by 158%. The company is now earning €0.07 per dollar of capital employed. In regards to capital employed, Berentzen-Gruppe appears to been achieving more with less, since the business is using 38% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 50% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

Our Take On Berentzen-Gruppe's ROCE

In the end, Berentzen-Gruppe has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has only returned 17% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One more thing to note, we've identified 3 warning signs with Berentzen-Gruppe and understanding them should be part of your investment process.

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

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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.
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