Eckert & Ziegler Strahlen- und Medizintechnik's (ETR:EUZ) Returns Have Hit A Wall

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Eckert & Ziegler Strahlen- und Medizintechnik (ETR:EUZ) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Eckert & Ziegler Strahlen- und Medizintechnik is:

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

0.092 = €30m ÷ (€386m - €57m) (Based on the trailing twelve months to September 2022).

So, Eckert & Ziegler Strahlen- und Medizintechnik has an ROCE of 9.2%. Even though it's in line with the industry average of 9.2%, it's still a low return by itself.

View our latest analysis for Eckert & Ziegler Strahlen- und Medizintechnik

Above you can see how the current ROCE for Eckert & Ziegler Strahlen- und Medizintechnik compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Eckert & Ziegler Strahlen- und Medizintechnik's ROCE Trend?

The returns on capital haven't changed much for Eckert & Ziegler Strahlen- und Medizintechnik in recent years. Over the past five years, ROCE has remained relatively flat at around 9.2% and the business has deployed 85% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line On Eckert & Ziegler Strahlen- und Medizintechnik's ROCE

In summary, Eckert & Ziegler Strahlen- und Medizintechnik 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 515% 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 Eckert & Ziegler Strahlen- und Medizintechnik and understanding this should be part of your investment process.

While Eckert & Ziegler Strahlen- und Medizintechnik 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.