There Are Reasons To Feel Uneasy About DATA MODUL Produktion und Vertrieb von elektronischen Systemen's (ETR:DAM) Returns On Capital

Simply Wall St
·3 min read

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at DATA MODUL Produktion und Vertrieb von elektronischen Systemen (ETR:DAM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on DATA MODUL Produktion und Vertrieb von elektronischen Systemen is:

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

0.16 = €24m ÷ (€234m - €82m) (Based on the trailing twelve months to September 2022).

So, DATA MODUL Produktion und Vertrieb von elektronischen Systemen has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 8.2% it's much better.

Check out our latest analysis for DATA MODUL Produktion und Vertrieb von elektronischen Systemen

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Above you can see how the current ROCE for DATA MODUL Produktion und Vertrieb von elektronischen Systemen compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

When we looked at the ROCE trend at DATA MODUL Produktion und Vertrieb von elektronischen Systemen, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 16% from 20% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On DATA MODUL Produktion und Vertrieb von elektronischen Systemen's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for DATA MODUL Produktion und Vertrieb von elektronischen Systemen. And there could be an opportunity here if other metrics look good too, because the stock has declined 23% in the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you want to continue researching DATA MODUL Produktion und Vertrieb von elektronischen Systemen, you might be interested to know about the 1 warning sign that our analysis has discovered.

While DATA MODUL Produktion und Vertrieb von elektronischen Systemen isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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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