Returns On Capital At Südwestdeutsche Salzwerke (FRA:SSH) Have Stalled

If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Südwestdeutsche Salzwerke (FRA:SSH) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on Südwestdeutsche Salzwerke is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.11 = €47m ÷ (€464m – €46m) (Based on the trailing twelve months to June 2024).

Therefore, Südwestdeutsche Salzwerke has an ROCE of 11%. In absolute terms, that’s a pretty normal return, and it’s somewhat close to the Food industry average of 12%.

Check out our latest analysis for Südwestdeutsche Salzwerke

Historical performance is a great place to start when researching a stock so above you can see the gauge for Südwestdeutsche Salzwerke’s ROCE against it’s prior returns. If you’re interested in investigating Südwestdeutsche Salzwerke’s past further, check out this free graph covering Südwestdeutsche Salzwerke’s past earnings, revenue and cash flow.

While the returns on capital are good, they haven’t moved much. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 40% in that time. Since 11% is a moderate ROCE though, it’s good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

To sum it up, Südwestdeutsche Salzwerke has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 15%, so the decline might provide an opening. That’s why we think it’d be worthwhile to look further into this stock given the fundamentals are appealing.

On a final note, we’ve found 2 warning signs for Südwestdeutsche Salzwerke that we think you should be aware of.