There has been no shortage of growth recently for Pittler Maschinenfabrik’s capital returns (FRA:PIT)
Did you know that there are financial metrics that can provide clues to a potential multi-bagger? Ideally, a business will show two trends; first growth to return to on capital employed (ROCE) and on the other hand, growth amount capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a blending machine. Speaking of which, we’ve noticed big changes in Pittler Maschinenfabrik (FRA:PIT) returns to capital, so let’s look.
Return on capital employed (ROCE): what is it?
If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. To calculate this metric for Pittler Maschinenfabrik, here is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.09 = €1.1m ÷ (€18m – €6.0m) (Based on the last twelve months to December 2021).
So, Pittler Maschinenfabrik has a ROCE of 9.0%. By itself, that’s a low return on capital, but it’s in line with industry average returns of 8.6%.
Discover our latest analysis for Pittler Maschinenfabrik
Historical performance is a great starting point when researching a stock. So you can see Pittler Maschinenfabrik’s ROCE gauge above compared to its past returns. If you want to dive deep into Pittler Maschinenfabrik’s earnings, revenue, and cash flow history, check out these free graphics here.
The ROCE trend
Even though ROCE is still weak in absolute terms, it is good to see that it is heading in the right direction. Over the past five years, return on capital employed has increased substantially to 9.0%. The amount of capital employed also increased by 55%. This may indicate that there are many opportunities to invest capital internally and at ever-increasing rates, a common combination among multi-baggers.
By the way, we noticed that the improvement in ROCE seems to be partly fueled by an increase in current liabilities. Essentially, the company now has suppliers or short-term creditors funding about 34% of its operations, which is not ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets becomes particularly high, it can introduce new risks to the business.
Our view on Pittler Maschinenfabrik’s ROCE
Overall, it’s great to see that Pittler Maschinenfabrik is reaping the rewards of past investments and growing its capital base. And since the stock has fallen 13% in the past five years, there could be an opportunity here. It therefore seems warranted to do further research on this company and determine whether or not these trends will continue.
Finally we found 4 warning signs for Pittler Maschinenfabrik (3 make us uncomfortable) that you should be aware of.
If you want to look for strong companies with excellent earnings, check out this free list of companies with strong balance sheets and impressive returns on equity.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.