Here's What To Make Of Kulmbacher Brauerei Aktien-Gesellschaft's (MUN:KUL) Decelerating Rates Of Return

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Kulmbacher Brauerei Aktien-Gesellschaft (MUN:KUL) and its ROCE trend, we weren't exactly thrilled.

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. 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)

0.075 = €11m ÷ (€227m - €83m) (Based on the trailing twelve months to June 2021).

Therefore, Kulmbacher Brauerei Aktien-Gesellschaft has an ROCE of 7.5%. In absolute terms, that's a low return, but it's much better than the Beverage industry average of 3.8%.

See 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 Does the ROCE Trend For Kulmbacher Brauerei Aktien-Gesellschaft Tell Us?

The returns on capital haven't changed much for Kulmbacher Brauerei Aktien-Gesellschaft in recent years. The company has employed 53% more capital in the last five years, and the returns on that capital have remained stable at 7.5%. 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.

Our Take 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 205% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you want to know some of the risks facing Kulmbacher Brauerei Aktien-Gesellschaft we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Kulmbacher Brauerei Aktien-Gesellschaft 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.
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