Returns On Capital At Allgäuer Brauhaus (MUN:ALB) Paint A Concerning Picture

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Allgäuer Brauhaus (MUN:ALB) and its ROCE trend, we weren't exactly thrilled.

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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. The formula for this calculation on Allgäuer Brauhaus is:

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

0.17 = €2.1m ÷ (€34m - €21m) (Based on the trailing twelve months to December 2024).

Therefore, Allgäuer Brauhaus has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Beverage industry average of 8.1% it's much better.

See our latest analysis for Allgäuer Brauhaus

Historical performance is a great place to start when researching a stock so above you can see the gauge for Allgäuer Brauhaus' ROCE against it's prior returns. If you're interested in investigating Allgäuer Brauhaus' past further, check out this free graph covering Allgäuer Brauhaus' past earnings, revenue and cash flow.

So How Is Allgäuer Brauhaus' ROCE Trending?

When we looked at the ROCE trend at Allgäuer Brauhaus, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 17% from 22% five years ago. However it looks like Allgäuer Brauhaus might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Allgäuer Brauhaus' current liabilities have increased over the last five years to 64% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 17%. What this means is that in reality, a rather large portion of the business is being funded by the likes of the company's suppliers or short-term creditors, which can bring some risks of its own.

Our Take On Allgäuer Brauhaus' ROCE

Bringing it all together, while we're somewhat encouraged by Allgäuer Brauhaus' reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 63% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 4 warning signs with Allgäuer Brauhaus (at least 3 which are potentially serious) , and understanding them would certainly be useful.

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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.