Yahoo Finance There Are Reasons To Feel Uneasy About Klassik Radio's (ETR:KA8) Returns On Capital
There are a few key trends to look for if we want to identify the next multi-bagger. 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. In light of that, when we looked at Klassik Radio (ETR:KA8) and its ROCE trend, we weren't exactly thrilled.
What Is 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 Klassik Radio is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.024 = €297k ÷ (€18m - €5.8m) (Based on the trailing twelve months to June 2023).
Therefore, Klassik Radio has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Media industry average of 8.1%.
View our latest analysis for Klassik Radio
Historical performance is a great place to start when researching a stock so above you can see the gauge for Klassik Radio's ROCE against it's prior returns. If you'd like to look at how Klassik Radio has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From Klassik Radio's ROCE Trend?
On the surface, the trend of ROCE at Klassik Radio doesn't inspire confidence. To be more specific, ROCE has fallen from 13% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
The Bottom Line
In summary, despite lower returns in the short term, we're encouraged to see that Klassik Radio is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 26% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Klassik Radio (of which 1 is a bit unpleasant!) that you should know about.
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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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.
