Edel SE KGaA (ETR:EDL) Is Doing The Right Things To Multiply Its Share Price

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Edel SE KGaA (ETR:EDL) so let's look a bit deeper.

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 Edel SE KGaA is:

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

0.11 = €14m ÷ (€160m - €34m) (Based on the trailing twelve months to March 2021).

So, Edel SE KGaA has an ROCE of 11%. By itself that's a normal return on capital and it's in line with the industry's average returns of 11%.

View our latest analysis for Edel SE KGaA

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

How Are Returns Trending?

Edel SE KGaA has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 94% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Edel SE KGaA's ROCE

In summary, we're delighted to see that Edel SE KGaA has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 98% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Edel SE KGaA can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing Edel SE KGaA we've found 3 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

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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