Investors Will Want Eckert & Ziegler Strahlen- und Medizintechnik's (ETR:EUZ) Growth In ROCE To Persist

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Eckert & Ziegler Strahlen- und Medizintechnik (ETR:EUZ) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Eckert & Ziegler Strahlen- und Medizintechnik:

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

0.16 = €47m ÷ (€331m - €48m) (Based on the trailing twelve months to September 2021).

Therefore, Eckert & Ziegler Strahlen- und Medizintechnik has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Medical Equipment industry average of 18%.

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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

The trends we've noticed at Eckert & Ziegler Strahlen- und Medizintechnik are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 16%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 75%. 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.

In Conclusion...

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 with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

Like most companies, Eckert & Ziegler Strahlen- und Medizintechnik does come with some risks, and we've found 1 warning sign that you should be aware of.

While Eckert & Ziegler Strahlen- und Medizintechnik isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.