Yahoo Finance Mühlbauer Holding (ETR:MUB) May Have Issues Allocating Its Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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 Mühlbauer Holding (ETR:MUB) and its ROCE trend, we weren't exactly thrilled.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Mühlbauer Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.085 = €40m ÷ (€468m - €25k) (Based on the trailing twelve months to June 2022).
Therefore, Mühlbauer Holding has an ROCE of 8.5%. In absolute terms, that's a low return but it's around the Machinery industry average of 8.8%.
Check out our latest analysis for Mühlbauer Holding
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Mühlbauer Holding, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at Mühlbauer Holding doesn't inspire confidence. Over the last five years, returns on capital have decreased to 8.5% from 16% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
The Bottom Line On Mühlbauer Holding's ROCE
To conclude, we've found that Mühlbauer Holding is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 108% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
Mühlbauer Holding does have some risks though, and we've spotted 1 warning sign for Mühlbauer Holding that you might be interested in.
While Mühlbauer Holding 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.
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