Deutsche Post's (ETR:DPW) Returns On Capital Are Heading Higher

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Deutsche Post (ETR:DPW) so let's look a bit deeper.

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 Deutsche Post is:

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

0.18 = €8.6b ÷ (€69b - €23b) (Based on the trailing twelve months to September 2022).

So, Deutsche Post has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 14% generated by the Logistics industry.

View our latest analysis for Deutsche Post

Above you can see how the current ROCE for Deutsche Post compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Deutsche Post here for free.

The Trend Of ROCE

We like the trends that we're seeing from Deutsche Post. The data shows that returns on capital have increased substantially over the last five years to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 103%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Deutsche Post's ROCE

All in all, it's terrific to see that Deutsche Post is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 21% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 2 warning signs we've spotted with Deutsche Post (including 1 which makes us a bit uncomfortable) .

While Deutsche Post 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. 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.