The Returns At Kulmbacher Brauerei Aktien-Gesellschaft (MUN:KUL) Aren't Growing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Kulmbacher Brauerei Aktien-Gesellschaft (MUN:KUL), it didn't seem to tick all of these boxes.

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)

0.064 = €9.5m ÷ (€234m - €87m) (Based on the trailing twelve months to June 2022).

Thus, Kulmbacher Brauerei Aktien-Gesellschaft has an ROCE of 6.4%. On its own, that's a low figure but it's around the 7.7% average generated by the Beverage industry.

Our analysis indicates that KUL is potentially undervalued!

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kulmbacher Brauerei Aktien-Gesellschaft's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Kulmbacher Brauerei Aktien-Gesellschaft, check out these free graphs here.

How Are Returns Trending?

The returns on capital haven't changed much for Kulmbacher Brauerei Aktien-Gesellschaft in recent years. The company has employed 52% more capital in the last five years, and the returns on that capital have remained stable at 6.4%. 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

In summary, Kulmbacher Brauerei Aktien-Gesellschaft has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 15% over the last five years, investors may not be too optimistic on this trend improving either. 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 Kulmbacher Brauerei Aktien-Gesellschaft (at least 1 which is significant) , and understanding them would certainly be useful.

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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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.