Eckert & Ziegler Strahlen- und Medizintechnik's (ETR:EUZ) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Eckert & Ziegler Strahlen- und Medizintechnik (ETR:EUZ) so let's look a bit deeper.

What is 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. To calculate this metric for Eckert & Ziegler Strahlen- und Medizintechnik, this is the formula:

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

0.17 = €46m ÷ (€321m - €46m) (Based on the trailing twelve months to June 2021).

Thus, Eckert & Ziegler Strahlen- und Medizintechnik has an ROCE of 17%. That's a pretty standard return and it's in line with the industry average of 17%.

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

In the above chart we have measured Eckert & Ziegler Strahlen- und Medizintechnik's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Eckert & Ziegler Strahlen- und Medizintechnik here for free.

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

Investors would be pleased with what's happening at Eckert & Ziegler Strahlen- und Medizintechnik. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 73% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Eckert & Ziegler Strahlen- und Medizintechnik's ROCE

To sum it up, Eckert & Ziegler Strahlen- und Medizintechnik has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 2,520% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Eckert & Ziegler Strahlen- und Medizintechnik can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

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.

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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