Yahoo Finance Returns Are Gaining Momentum At Klöckner & Co (ETR:KCO)
There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in Klöckner & Co's (ETR:KCO) returns on capital, so let's have a look.
Understanding 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. The formula for this calculation on Klöckner & Co is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = €272m ÷ (€3.9b - €1.4b) (Based on the trailing twelve months to December 2022).
Thus, Klöckner & Co has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Trade Distributors industry average it falls behind.
View our latest analysis for Klöckner & Co
In the above chart we have measured Klöckner & Co's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From Klöckner & Co's ROCE Trend?
The trends we've noticed at Klöckner & Co are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 25%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line On Klöckner & Co's ROCE
All in all, it's terrific to see that Klöckner & Co is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 7.3% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
One more thing: We've identified 4 warning signs with Klöckner & Co (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.
While Klöckner & Co may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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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