Returns On Capital At Schloss Wachenheim (ETR:SWA) Have Stalled

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Schloss Wachenheim (ETR:SWA), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Schloss Wachenheim is:

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

0.09 = €23m ÷ (€391m - €132m) (Based on the trailing twelve months to December 2020).

Therefore, Schloss Wachenheim has an ROCE of 9.0%. In absolute terms, that's a low return, but it's much better than the Beverage industry average of 5.6%.

Check out our latest analysis for Schloss Wachenheim

Above you can see how the current ROCE for Schloss Wachenheim 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 Does the ROCE Trend For Schloss Wachenheim Tell Us?

In terms of Schloss Wachenheim's historical ROCE trend, it doesn't exactly demand attention. The company has employed 31% more capital in the last five years, and the returns on that capital have remained stable at 9.0%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Schloss Wachenheim's ROCE

In summary, Schloss Wachenheim has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 39% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you're still interested in Schloss Wachenheim it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Schloss Wachenheim may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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