Corbion's (AMS:CRBN) Returns On Capital Not Reflecting Well On The Business

By
Simply Wall St
Published
December 10, 2021
ENXTAM:CRBN
Source: Shutterstock

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Corbion (AMS:CRBN) and its ROCE trend, we weren't exactly thrilled.

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. To calculate this metric for Corbion, this is the formula:

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

0.10 = €93m ÷ (€1.2b - €273m) (Based on the trailing twelve months to June 2021).

So, Corbion has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 12% generated by the Chemicals industry.

View our latest analysis for Corbion

roce
ENXTAM:CRBN Return on Capital Employed December 10th 2021

Above you can see how the current ROCE for Corbion compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

Unfortunately, the trend isn't great with ROCE falling from 18% five years ago, while capital employed has grown 36%. That being said, Corbion raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Corbion's earnings and if they change as a result from the capital raise.

The Key Takeaway

In summary, Corbion is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 71% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you'd like to know about the risks facing Corbion, we've discovered 3 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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