Park & Bellheimer (FRA:PKB) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Park & Bellheimer (FRA:PKB) and its trend of ROCE, we really liked what we saw.

Our free stock report includes 3 warning signs investors should be aware of before investing in Park & Bellheimer. Read for free now.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Park & Bellheimer is:

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

0.11 = €2.4m ÷ (€40m - €17m) (Based on the trailing twelve months to June 2024).

So, Park & Bellheimer has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.2% generated by the Beverage industry.

Check out our latest analysis for Park & Bellheimer

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're interested in investigating Park & Bellheimer's past further, check out this free graph covering Park & Bellheimer's past earnings, revenue and cash flow.

What Does the ROCE Trend For Park & Bellheimer Tell Us?

We like the trends that we're seeing from Park & Bellheimer. The data shows that returns on capital have increased substantially over the last five years to 11%. The amount of capital employed has increased too, by 21%. So we're very much inspired by what we're seeing at Park & Bellheimer thanks to its ability to profitably reinvest capital.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 43% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

Our Take On Park & Bellheimer's ROCE

All in all, it's terrific to see that Park & Bellheimer is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 30% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 3 warning signs we've spotted with Park & Bellheimer (including 1 which is concerning) .

While Park & Bellheimer 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.