Returns On Capital At KWS SAAT SE KGaA (ETR:KWS) Paint A Concerning Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. In light of that, when we looked at KWS SAAT SE KGaA (ETR:KWS) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on KWS SAAT SE KGaA is:

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

0.064 = €131m ÷ (€2.9b - €862m) (Based on the trailing twelve months to March 2022).

So, KWS SAAT SE KGaA has an ROCE of 6.4%. In absolute terms, that's a low return and it also under-performs the Food industry average of 8.4%.

View our latest analysis for KWS SAAT SE KGaA

Above you can see how the current ROCE for KWS SAAT SE KGaA compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From KWS SAAT SE KGaA's ROCE Trend?

On the surface, the trend of ROCE at KWS SAAT SE KGaA doesn't inspire confidence. Over the last five years, returns on capital have decreased to 6.4% from 10.0% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From KWS SAAT SE KGaA's ROCE

In summary, KWS SAAT SE KGaA is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think KWS SAAT SE KGaA has the makings of a multi-bagger.

KWS SAAT SE KGaA does have some risks though, and we've spotted 1 warning sign for KWS SAAT SE KGaA that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.