Can Berentzen-Gruppe (ETR:BEZ) Continue To Grow Its Returns On Capital?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Berentzen-Gruppe (ETR:BEZ) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

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 June 2020).

Thus, Berentzen-Gruppe has an ROCE of 6.6%. Even though it's in line with the industry average of 6.7%, it's still a low return by itself.

See our latest analysis for Berentzen-Gruppe

Above you can see how the current ROCE for Berentzen-Gruppe compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Berentzen-Gruppe.

What Can We Tell From Berentzen-Gruppe's ROCE Trend?

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%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 38% less capital than it was five years ago. Berentzen-Gruppe may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 50% of its operations, which isn't ideal. 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 summary, it's great to see that Berentzen-Gruppe has been able to turn things around and earn higher returns on lower amounts of capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 3 warning signs for Berentzen-Gruppe you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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