The Returns At Südwestdeutsche Salzwerke (FRA:SSH) Aren't Growing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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.

What Is 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. 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%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.9% it's much better.

View 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'd like to look at how Südwestdeutsche Salzwerke has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Südwestdeutsche Salzwerke's ROCE Trending?

While the returns on capital are good, they haven't moved much. 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. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On Südwestdeutsche Salzwerke's ROCE

To sum it up, Südwestdeutsche Salzwerke has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 122% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Südwestdeutsche Salzwerke does have some risks though, and we've spotted 1 warning sign for Südwestdeutsche Salzwerke that you might be interested in.

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.