Should You Be Impressed By SNP Schneider-Neureither & Partner's (ETR:SHF) Returns on Capital?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think SNP Schneider-Neureither & Partner (ETR:SHF) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on SNP Schneider-Neureither & Partner is:

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

0.052 = €8.2m ÷ (€203m - €46m) (Based on the trailing twelve months to September 2020).

Thus, SNP Schneider-Neureither & Partner has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the IT industry average of 8.6%.

Check out our latest analysis for SNP Schneider-Neureither & Partner

Above you can see how the current ROCE for SNP Schneider-Neureither & Partner 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 SNP Schneider-Neureither & Partner.

What Can We Tell From SNP Schneider-Neureither & Partner's ROCE Trend?

We weren't thrilled with the trend because SNP Schneider-Neureither & Partner's ROCE has reduced by 35% over the last five years, while the business employed 374% more capital. Usually this isn't ideal, but given SNP Schneider-Neureither & Partner conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with SNP Schneider-Neureither & Partner's earnings and if they change as a result from the capital raise.

The Key Takeaway

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for SNP Schneider-Neureither & Partner. And the stock has followed suit returning a meaningful 77% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

On a final note, we found 3 warning signs for SNP Schneider-Neureither & Partner (1 doesn't sit too well with us) you should be aware of.

While SNP Schneider-Neureither & Partner 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. 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.
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