LUDWIG BECK am Rathauseck - Textilhaus Feldmeier (ETR:ECK) Will Be Hoping To Turn Its Returns On Capital Around

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at LUDWIG BECK am Rathauseck - Textilhaus Feldmeier (ETR:ECK), it didn't seem to tick all of these boxes.

Understanding 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 LUDWIG BECK am Rathauseck - Textilhaus Feldmeier:

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

0.035 = €5.1m ÷ (€170m - €26m) (Based on the trailing twelve months to June 2023).

So, LUDWIG BECK am Rathauseck - Textilhaus Feldmeier has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Multiline Retail industry average of 7.7%.

View our latest analysis for LUDWIG BECK am Rathauseck - Textilhaus Feldmeier

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

What Does the ROCE Trend For LUDWIG BECK am Rathauseck - Textilhaus Feldmeier Tell Us?

On the surface, the trend of ROCE at LUDWIG BECK am Rathauseck - Textilhaus Feldmeier doesn't inspire confidence. Over the last five years, returns on capital have decreased to 3.5% from 7.5% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On LUDWIG BECK am Rathauseck - Textilhaus Feldmeier's ROCE

Bringing it all together, while we're somewhat encouraged by LUDWIG BECK am Rathauseck - Textilhaus Feldmeier's reinvestment in its own business, we're aware that returns are shrinking. Unsurprisingly, the stock has only gained 7.6% over the last five years, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you want to know some of the risks facing LUDWIG BECK am Rathauseck - Textilhaus Feldmeier we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While LUDWIG BECK am Rathauseck - Textilhaus Feldmeier isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.