The Return Trends At BHB Brauholding Bayern-Mitte (FRA:B9B) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in BHB Brauholding Bayern-Mitte's (FRA:B9B) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.036 = €474k ÷ (€15m - €1.9m) (Based on the trailing twelve months to June 2023).

So, BHB Brauholding Bayern-Mitte has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Beverage industry average of 5.9%.

View our latest analysis for BHB Brauholding Bayern-Mitte

Above you can see how the current ROCE for BHB Brauholding Bayern-Mitte compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering BHB Brauholding Bayern-Mitte for free.

What Does the ROCE Trend For BHB Brauholding Bayern-Mitte Tell Us?

While there are companies with higher returns on capital out there, we still find the trend at BHB Brauholding Bayern-Mitte promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 28% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

As discussed above, BHB Brauholding Bayern-Mitte appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 1.6% to shareholders. So with that in mind, we think the stock deserves further research.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for BHB Brauholding Bayern-Mitte (of which 1 makes us a bit uncomfortable!) that you should 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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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.