Returns On Capital At Südwestdeutsche Salzwerke (FRA:SSH) Have Stalled

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Südwestdeutsche Salzwerke's (FRA:SSH) trend of ROCE, we liked what we saw.

Understanding 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. Analysts use this formula to calculate it for Südwestdeutsche Salzwerke:

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

0.11 = €39m ÷ (€389m - €37m) (Based on the trailing twelve months to June 2022).

Thus, Südwestdeutsche Salzwerke has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.9% generated by the Food industry.

See our latest analysis for Südwestdeutsche Salzwerke

Historical performance is a great place to start when researching a stock so above you can see the gauge for Südwestdeutsche Salzwerke's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Südwestdeutsche Salzwerke, check out these free graphs here.

What Can We Tell From Südwestdeutsche Salzwerke's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 28% more capital into its operations. Since 11% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

To sum it up, Südwestdeutsche Salzwerke has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 100% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing, we've spotted 1 warning sign facing Südwestdeutsche Salzwerke that you might find interesting.

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.