Should You Be Impressed By DATA MODUL Produktion und Vertrieb von elektronischen Systemen's (ETR:DAM) Returns on Capital?

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think DATA MODUL Produktion und Vertrieb von elektronischen Systemen (ETR:DAM) 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. To calculate this metric for DATA MODUL Produktion und Vertrieb von elektronischen Systemen, this is the formula:

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

0.076 = €9.3m ÷ (€162m - €40m) (Based on the trailing twelve months to September 2020).

Therefore, DATA MODUL Produktion und Vertrieb von elektronischen Systemen has an ROCE of 7.6%. In absolute terms, that's a low return but it's around the Electronic industry average of 8.7%.

View our latest analysis for DATA MODUL Produktion und Vertrieb von elektronischen Systemen

In the above chart we have measured DATA MODUL Produktion und Vertrieb von elektronischen Systemen's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering DATA MODUL Produktion und Vertrieb von elektronischen Systemen here for free.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at DATA MODUL Produktion und Vertrieb von elektronischen Systemen doesn't inspire confidence. Over the last five years, returns on capital have decreased to 7.6% from 22% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On DATA MODUL Produktion und Vertrieb von elektronischen Systemen's ROCE

We're a bit apprehensive about DATA MODUL Produktion und Vertrieb von elektronischen Systemen because despite more capital being deployed in the business, returns on that capital and sales have both fallen. In spite of that, the stock has delivered a 32% return to shareholders who held over the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.

On a final note, we've found 1 warning sign for DATA MODUL Produktion und Vertrieb von elektronischen Systemen that we think you should be aware of.

While DATA MODUL Produktion und Vertrieb von elektronischen Systemen isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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