Here's What To Make Of Kulmbacher Brauerei Aktien-Gesellschaft's (MUN:KUL) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Kulmbacher Brauerei Aktien-Gesellschaft (MUN:KUL) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Kulmbacher Brauerei Aktien-Gesellschaft, this is the formula:

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

0.079 = €11m ÷ (€218m - €74m) (Based on the trailing twelve months to June 2020).

So, Kulmbacher Brauerei Aktien-Gesellschaft has an ROCE of 7.9%. On its own, that's a low figure but it's around the 6.7% average generated by the Beverage industry.

View our latest analysis for Kulmbacher Brauerei Aktien-Gesellschaft

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 Kulmbacher Brauerei Aktien-Gesellschaft's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Kulmbacher Brauerei Aktien-Gesellschaft in recent years. The company has consistently earned 7.9% for the last five years, and the capital employed within the business has risen 59% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Kulmbacher Brauerei Aktien-Gesellschaft's ROCE

In summary, Kulmbacher Brauerei Aktien-Gesellschaft has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 105% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing to note, we've identified 1 warning sign with Kulmbacher Brauerei Aktien-Gesellschaft and understanding this should be part of your investment process.

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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