Returns On Capital At LUDWIG BECK am Rathauseck - Textilhaus Feldmeier (ETR:ECK) Paint An Interesting Picture

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after investigating LUDWIG BECK am Rathauseck - Textilhaus Feldmeier (ETR:ECK), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for LUDWIG BECK am Rathauseck - Textilhaus Feldmeier, this is the formula:

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

0.0024 = €365k ÷ (€181m - €29m) (Based on the trailing twelve months to September 2020).

So, LUDWIG BECK am Rathauseck - Textilhaus Feldmeier has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Multiline Retail industry average of 16%.

Check out 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'd like to look at how LUDWIG BECK am Rathauseck - Textilhaus Feldmeier has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

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

When we looked at the ROCE trend at LUDWIG BECK am Rathauseck - Textilhaus Feldmeier, we didn't gain much confidence. To be more specific, ROCE has fallen from 4.8% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

On a related note, LUDWIG BECK am Rathauseck - Textilhaus Feldmeier has decreased its current liabilities to 16% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Bottom Line

We're a bit apprehensive about LUDWIG BECK am Rathauseck - Textilhaus Feldmeier because despite more capital being deployed in the business, returns on that capital and sales have both fallen. And long term shareholders have watched their investments stay flat over the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you'd like to know about the risks facing LUDWIG BECK am Rathauseck - Textilhaus Feldmeier, we've discovered 2 warning signs that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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