Spielvereinigung Unterhaching Fußball GmbH KGaA (FRA:S6P) Might Have The Makings Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So when we looked at Spielvereinigung Unterhaching Fußball GmbH KGaA (FRA:S6P) and its trend of ROCE, we really liked what we saw.

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Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Spielvereinigung Unterhaching Fußball GmbH KGaA, this is the formula:

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

0.039 = €507k ÷ (€18m - €4.8m) (Based on the trailing twelve months to June 2024).

Therefore, Spielvereinigung Unterhaching Fußball GmbH KGaA has an ROCE of 3.9%. Even though it's in line with the industry average of 3.9%, it's still a low return by itself.

See our latest analysis for Spielvereinigung Unterhaching Fußball GmbH KGaA

Historical performance is a great place to start when researching a stock so above you can see the gauge for Spielvereinigung Unterhaching Fußball GmbH KGaA's ROCE against it's prior returns. If you're interested in investigating Spielvereinigung Unterhaching Fußball GmbH KGaA's past further, check out this free graph covering Spielvereinigung Unterhaching Fußball GmbH KGaA's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The fact that Spielvereinigung Unterhaching Fußball GmbH KGaA is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 3.9% on its capital. In addition to that, Spielvereinigung Unterhaching Fußball GmbH KGaA is employing 521% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Spielvereinigung Unterhaching Fußball GmbH KGaA has decreased current liabilities to 27% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Spielvereinigung Unterhaching Fußball GmbH KGaA's ROCE

Overall, Spielvereinigung Unterhaching Fußball GmbH KGaA gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Given the stock has declined 67% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 3 warning signs we've spotted with Spielvereinigung Unterhaching Fußball GmbH KGaA (including 2 which are a bit concerning) .

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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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.