Yahoo Finance A Look Into Knaus Tabbert's (ETR:KTA) Impressive Returns On Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. That's why when we briefly looked at Knaus Tabbert's (ETR:KTA) ROCE trend, we were very happy with what we saw.
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. Analysts use this formula to calculate it for Knaus Tabbert:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = €95m ÷ (€682m - €355m) (Based on the trailing twelve months to December 2023).
Therefore, Knaus Tabbert has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.
View our latest analysis for Knaus Tabbert
In the above chart we have measured Knaus Tabbert'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 Knaus Tabbert for free.
What Can We Tell From Knaus Tabbert's ROCE Trend?
Knaus Tabbert deserves to be commended in regards to it's returns. The company has employed 175% more capital in the last five years, and the returns on that capital have remained stable at 29%. Now considering ROCE is an attractive 29%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.
On a separate but related note, it's important to know that Knaus Tabbert has a current liabilities to total assets ratio of 52%, 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Key Takeaway
In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. Yet over the last three years the stock has declined 33%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.
On a final note, we found 3 warning signs for Knaus Tabbert (2 are significant) you should be aware of.
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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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.
