Mineralbrunnen Überkingen-Teinach GmbH KGaA (FRA:MUT) May Have Issues Allocating Its Capital

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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. Having said that, after a brief look, Mineralbrunnen Überkingen-Teinach GmbH KGaA (FRA:MUT) we aren't filled with optimism, but let's investigate further.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Mineralbrunnen Überkingen-Teinach GmbH KGaA, this is the formula:

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

0.056 = €6.9m ÷ (€144m - €21m) (Based on the trailing twelve months to June 2023).

Therefore, Mineralbrunnen Überkingen-Teinach GmbH KGaA has an ROCE of 5.6%. Even though it's in line with the industry average of 5.9%, it's still a low return by itself.

Check out our latest analysis for Mineralbrunnen Überkingen-Teinach GmbH KGaA

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Mineralbrunnen Überkingen-Teinach GmbH KGaA has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Mineralbrunnen Überkingen-Teinach GmbH KGaA's ROCE Trend?

In terms of Mineralbrunnen Überkingen-Teinach GmbH KGaA's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 9.0% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Mineralbrunnen Überkingen-Teinach GmbH KGaA becoming one if things continue as they have.

The Bottom Line On Mineralbrunnen Überkingen-Teinach GmbH KGaA's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. In spite of that, the stock has delivered a 20% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

One more thing: We've identified 4 warning signs with Mineralbrunnen Überkingen-Teinach GmbH KGaA (at least 1 which is a bit concerning) , and understanding them would certainly be useful.

While Mineralbrunnen Überkingen-Teinach GmbH KGaA isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.