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If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Edel SE KGaA (ETR:EDL) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Edel SE KGaA, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = €19m ÷ (€205m - €35m) (Based on the trailing twelve months to September 2024).
Thus, Edel SE KGaA has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Entertainment industry average of 14%.
View our latest analysis for Edel SE KGaA
In the above chart we have measured Edel SE KGaA's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Edel SE KGaA .
So How Is Edel SE KGaA's ROCE Trending?
Investors would be pleased with what's happening at Edel SE KGaA. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 87%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
On a related note, the company's ratio of current liabilities to total assets has decreased to 17%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Edel SE KGaA has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
What We Can Learn From Edel SE KGaA's ROCE
All in all, it's terrific to see that Edel SE KGaA is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.