Spielvereinigung Unterhaching Fußball GmbH KGaA (FRA:S6P) Shareholders Will Want The ROCE Trajectory To Continue

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Spielvereinigung Unterhaching Fußball GmbH KGaA:

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.

View 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 Does the ROCE Trend For Spielvereinigung Unterhaching Fußball GmbH KGaA 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 27%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Spielvereinigung Unterhaching Fußball GmbH KGaA's ROCE

Long story short, we're delighted to see that Spielvereinigung Unterhaching Fußball GmbH KGaA's reinvestment activities have paid off and the company is now profitable. And since the stock has dived 83% over the last five years, there may be other factors affecting the company's prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

One final note, you should learn about the 3 warning signs we've spotted with Spielvereinigung Unterhaching Fußball GmbH KGaA (including 2 which shouldn't be ignored) .

While Spielvereinigung Unterhaching Fußball GmbH 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.