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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at Ströer SE KGaA (ETR:SAX) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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 Ströer SE KGaA:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = €225m ÷ (€2.7b - €800m) (Based on the trailing twelve months to June 2022).
Therefore, Ströer SE KGaA has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Media industry average of 15%.
Check out our latest analysis for Ströer SE KGaA
Above you can see how the current ROCE for Ströer SE KGaA compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Ströer SE KGaA here for free.
So How Is Ströer SE KGaA's ROCE Trending?
Ströer SE KGaA is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 12%. The amount of capital employed has increased too, by 49%. 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.
The Bottom Line
To sum it up, Ströer SE KGaA has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Given the stock has declined 14% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.
On a final note, we've found 2 warning signs for Ströer SE KGaA that we think you should be aware of.
While Ströer SE KGaA 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.
About XTRA:SAX
Ströer SE KGaA
Provides out-of-home (OOH) media and online advertising solutions in Germany and internationally.
High growth potential average dividend payer.
