There's Been No Shortage Of Growth Recently For Brüder Mannesmann's (FRA:BMM) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Brüder Mannesmann (FRA:BMM) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Brüder Mannesmann is:

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

0.13 = €3.8m ÷ (€36m - €6.6m) (Based on the trailing twelve months to December 2020).

So, Brüder Mannesmann has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Retail Distributors industry average of 16%.

See our latest analysis for Brüder Mannesmann

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

What Can We Tell From Brüder Mannesmann's ROCE Trend?

Brüder Mannesmann has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 57% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a related note, the company's ratio of current liabilities to total assets has decreased to 19%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Brüder Mannesmann's ROCE

In summary, we're delighted to see that Brüder Mannesmann has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 105% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 3 warning signs for Brüder Mannesmann you'll probably want to know about.

While Brüder Mannesmann isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.