Returns At Schulte-Schlagbaum (DUSE:SSS) Are On The Way Up

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in Schulte-Schlagbaum's (DUSE:SSS) returns on capital, so let's have a look.

What is 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. Analysts use this formula to calculate it for Schulte-Schlagbaum:

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

0.15 = €4.7m ÷ (€35m - €3.3m) (Based on the trailing twelve months to December 2020).

So, Schulte-Schlagbaum has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 9.5% it's much better.

See our latest analysis for Schulte-Schlagbaum

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

What Does the ROCE Trend For Schulte-Schlagbaum Tell Us?

Schulte-Schlagbaum's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 564% over the last five years. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Schulte-Schlagbaum's ROCE

In summary, we're delighted to see that Schulte-Schlagbaum has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 40% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 3 warning signs with Schulte-Schlagbaum and understanding them should be part of your investment process.

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

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.

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