How Do Staatl. Mineralbrunnen AG’s (MUN:SLB) Returns On Capital Compare To Peers?
Today we are going to look at Staatl. Mineralbrunnen AG (MUN:SLB) to see whether it might be an attractive investment prospect. Specifically, we'll consider its Return On Capital Employed (ROCE), since that will give us an insight into how efficiently the business can generate profits from the capital it requires.
First of all, we'll work out how to calculate ROCE. Next, we'll compare it to others in its industry. Last but not least, we'll look at what impact its current liabilities have on its ROCE.
Return On Capital Employed (ROCE): What is it?
ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Generally speaking a higher ROCE is better. Ultimately, it is a useful but imperfect metric. Renowned investment researcher Michael Mauboussin has suggested that a high ROCE can indicate that 'one dollar invested in the company generates value of more than one dollar'.
So, How Do We Calculate ROCE?
The formula for calculating the return on capital employed is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Or for Staatl. Mineralbrunnen:
0.04 = €755k ÷ (€21m - €2.4m) (Based on the trailing twelve months to December 2018.)
So, Staatl. Mineralbrunnen has an ROCE of 4.0%.
View our latest analysis for Staatl. Mineralbrunnen
Does Staatl. Mineralbrunnen Have A Good ROCE?
When making comparisons between similar businesses, investors may find ROCE useful. We can see Staatl. Mineralbrunnen's ROCE is meaningfully below the Beverage industry average of 9.6%. This performance could be negative if sustained, as it suggests the business may underperform its industry. Aside from the industry comparison, Staatl. Mineralbrunnen's ROCE is mediocre in absolute terms, considering the risk of investing in stocks versus the safety of a bank account. It is possible that there are more rewarding investments out there.
You can see in the image below how Staatl. Mineralbrunnen's ROCE compares to its industry. Click to see more on past growth.
Remember that this metric is backwards looking - it shows what has happened in the past, and does not accurately predict the future. ROCE can be deceptive for cyclical businesses, as returns can look incredible in boom times, and terribly low in downturns. This is because ROCE only looks at one year, instead of considering returns across a whole cycle. You can check if Staatl. Mineralbrunnen has cyclical profits by looking at this free graph of past earnings, revenue and cash flow.
How Staatl. Mineralbrunnen's Current Liabilities Impact Its ROCE
Liabilities, such as supplier bills and bank overdrafts, are referred to as current liabilities if they need to be paid within 12 months. Due to the way the ROCE equation works, having large bills due in the near term can make it look as though a company has less capital employed, and thus a higher ROCE than usual. To check the impact of this, we calculate if a company has high current liabilities relative to its total assets.
Staatl. Mineralbrunnen has total liabilities of €2.4m and total assets of €21m. Therefore its current liabilities are equivalent to approximately 11% of its total assets. This is a modest level of current liabilities, which would only have a small effect on ROCE.
Our Take On Staatl. Mineralbrunnen's ROCE
That said, Staatl. Mineralbrunnen's ROCE is mediocre, there may be more attractive investments around. Of course, you might also be able to find a better stock than Staatl. Mineralbrunnen. So you may wish to see this free collection of other companies that have grown earnings strongly.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
