BHB Brauholding Bayern-Mitte (FRA:B9B) Is Finding It Tricky To Allocate Its Capital

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. 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 we looked into BHB Brauholding Bayern-Mitte (FRA:B9B), the trends above didn't look too great.

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 BHB Brauholding Bayern-Mitte, this is the formula:

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).

Thus, 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 7.5%.

See 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're interested, you can view the analysts predictions in our free analyst report for BHB Brauholding Bayern-Mitte .

So How Is BHB Brauholding Bayern-Mitte's ROCE Trending?

We are a bit worried about the trend of returns on capital at BHB Brauholding Bayern-Mitte. Unfortunately the returns on capital have diminished from the 3.5% that they were earning five years ago. 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.

What We Can Learn From BHB Brauholding Bayern-Mitte's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Long term shareholders who've owned the stock over the last five years have experienced a 29% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we found 5 warning signs for BHB Brauholding Bayern-Mitte (1 is significant) you should be aware of.

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.