Fielmann Group's (ETR:FIE) Returns On Capital Not Reflecting Well On The Business

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Fielmann Group (ETR:FIE) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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 Fielmann Group:

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

0.12 = €173m ÷ (€1.8b - €435m) (Based on the trailing twelve months to March 2023).

So, Fielmann Group has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Specialty Retail industry average of 3.4% it's much better.

View our latest analysis for Fielmann Group

Above you can see how the current ROCE for Fielmann Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Fielmann Group.

How Are Returns Trending?

When we looked at the ROCE trend at Fielmann Group, we didn't gain much confidence. To be more specific, ROCE has fallen from 33% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Fielmann Group's ROCE

Bringing it all together, while we're somewhat encouraged by Fielmann Group's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 16% in the last five years. Therefore based on the analysis done in this article, we don't think Fielmann Group has the makings of a multi-bagger.

If you want to continue researching Fielmann Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.