Kulmbacher Brauerei Aktien-Gesellschaft (MUN:KUL) Will Be Hoping To Turn Its Returns On Capital Around

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. However, after investigating Kulmbacher Brauerei Aktien-Gesellschaft (MUN:KUL), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Kulmbacher Brauerei Aktien-Gesellschaft:

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

0.057 = €8.5m ÷ (€235m - €86m) (Based on the trailing twelve months to December 2021).

So, Kulmbacher Brauerei Aktien-Gesellschaft has an ROCE of 5.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.4%.

Check out 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 want to delve into the historical earnings, revenue and cash flow of Kulmbacher Brauerei Aktien-Gesellschaft, check out these free graphs here.

So How Is Kulmbacher Brauerei Aktien-Gesellschaft's ROCE Trending?

In terms of Kulmbacher Brauerei Aktien-Gesellschaft's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 5.7% from 8.4% five years ago. However it looks like Kulmbacher Brauerei Aktien-Gesellschaft 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.

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

To conclude, we've found that Kulmbacher Brauerei Aktien-Gesellschaft is reinvesting in the business, but returns have been falling. Although the market must be expecting these trends to improve because the stock has gained 42% 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.

One final note, you should learn about the 4 warning signs we've spotted with Kulmbacher Brauerei Aktien-Gesellschaft (including 1 which can't be ignored) .

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.