Capital Investment Trends At Bahnhof (NGM:BAHN B) Look Strong

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Ergo, when we looked at the ROCE trends at Bahnhof (NGM:BAHN B), we liked what we saw.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Bahnhof:

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

0.42 = kr164m ÷ (kr796m - kr405m) (Based on the trailing twelve months to September 2020).

So, Bahnhof has an ROCE of 42%. That's a fantastic return and not only that, it outpaces the average of 8.2% earned by companies in a similar industry.

Check out our latest analysis for Bahnhof

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bahnhof's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Bahnhof, check out these free graphs here.

What Can We Tell From Bahnhof's ROCE Trend?

It's hard not to be impressed by Bahnhof's returns on capital. The company has consistently earned 42% for the last five years, and the capital employed within the business has risen 108% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

On a separate but related note, it's important to know that Bahnhof has a current liabilities to total assets ratio of 51%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Bahnhof's ROCE

Bahnhof has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 141% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing to note, we've identified 1 warning sign with Bahnhof and understanding it should be part of your investment process.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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