BHB Brauholding Bayern-Mitte (FRA:B9B) Has Some Difficulty Using Its Capital Effectively

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within BHB Brauholding Bayern-Mitte (FRA:B9B), we weren't too hopeful.

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 BHB Brauholding Bayern-Mitte is:

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

0.0077 = €112k ÷ (€18m - €3.7m) (Based on the trailing twelve months to June 2024).

So, BHB Brauholding Bayern-Mitte has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Beverage industry average of 7.1%.

Check out our latest analysis for BHB Brauholding Bayern-Mitte

In the above chart we have measured BHB Brauholding Bayern-Mitte's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for BHB Brauholding Bayern-Mitte .

What Can We Tell From BHB Brauholding Bayern-Mitte's ROCE Trend?

We are a bit worried about the trend of returns on capital at BHB Brauholding Bayern-Mitte. To be more specific, the ROCE was 3.5% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect BHB Brauholding Bayern-Mitte to turn into a multi-bagger.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Long term shareholders who've owned the stock over the last five years have experienced a 18% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

BHB Brauholding Bayern-Mitte does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those is potentially serious...

While BHB Brauholding Bayern-Mitte 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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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.