Investors Shouldn't Overlook The Favourable Returns On Capital At CTS Eventim KGaA (ETR:EVD)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over CTS Eventim KGaA's (ETR:EVD) trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for CTS Eventim KGaA:

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

0.33 = €408m ÷ (€3.6b - €2.3b) (Based on the trailing twelve months to June 2024).

So, CTS Eventim KGaA has an ROCE of 33%. In absolute terms that's a great return and it's even better than the Entertainment industry average of 16%.

View our latest analysis for CTS Eventim KGaA

In the above chart we have measured CTS Eventim KGaA'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 CTS Eventim KGaA for free.

So How Is CTS Eventim KGaA's ROCE Trending?

CTS Eventim KGaA deserves to be commended in regards to it's returns. Over the past five years, ROCE has remained relatively flat at around 33% and the business has deployed 83% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If CTS Eventim KGaA can keep this up, we'd be very optimistic about its future.

Another thing to note, CTS Eventim KGaA has a high ratio of current liabilities to total assets of 65%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

CTS Eventim KGaA has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And the stock has followed suit returning a meaningful 73% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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 for EVD that compares the share price and estimated value.

CTS Eventim KGaA is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.