Returns On Capital Signal Difficult Times Ahead For BHB Brauholding Bayern-Mitte (FRA:B9B)

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we’ll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it’s shrinking its base of capital employed. And from a first read, things don’t look too good at BHB Brauholding Bayern-Mitte (FRA:B9B), so let’s see why.

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. To calculate this metric for BHB Brauholding Bayern-Mitte, this is the formula:

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

0.0077 = €112k ÷ (€18m – €3.7m) (Based on the trailing twelve months to June 2024).

So, BHB Brauholding Bayern-Mitte has an ROCE of 0.8%. In absolute terms, that’s a low return and it also under-performs the Beverage industry average of 7.8%.

See our latest analysis for BHB Brauholding Bayern-Mitte

Above you can see how the current ROCE for BHB Brauholding Bayern-Mitte compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like to see what analysts are forecasting going forward, you should check out our free analyst report for BHB Brauholding Bayern-Mitte .

We are a bit worried about the trend of returns on capital at BHB Brauholding Bayern-Mitte. Unfortunately the returns on capital have diminished from the 3.5% that they were earning five years ago. On top of that, it’s worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren’t typically conducive to creating a multi-bagger, we wouldn’t hold our breath on BHB Brauholding Bayern-Mitte becoming one if things continue as they have.

All in all, the lower returns from the same amount of capital employed aren’t exactly signs of a compounding machine. It should come as no surprise then that the stock has fallen 19% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we’d consider looking elsewhere.