SW Umwelttechnik Stoiser & Wolschner AG (VIE:SWUT) Is Employing Capital Very Effectively
Today we are going to look at SW Umwelttechnik Stoiser & Wolschner AG (VIE:SWUT) to see whether it might be an attractive investment prospect. Specifically, we're going to calculate its Return On Capital Employed (ROCE), in the hopes of getting some insight into the business.
First, we'll go over how we 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.
Understanding Return On Capital Employed (ROCE)
ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. All else being equal, a better business will have a higher ROCE. Ultimately, it is a useful but imperfect metric. Author Edwin Whiting says to be careful when comparing the ROCE of different businesses, since 'No two businesses are exactly alike.
So, How Do We Calculate ROCE?
Analysts use this formula to calculate return on capital employed:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Or for SW Umwelttechnik Stoiser & Wolschner:
0.14 = €8.6m ÷ (€94m - €34m) (Based on the trailing twelve months to June 2019.)
Therefore, SW Umwelttechnik Stoiser & Wolschner has an ROCE of 14%.
View our latest analysis for SW Umwelttechnik Stoiser & Wolschner
Does SW Umwelttechnik Stoiser & Wolschner Have A Good ROCE?
When making comparisons between similar businesses, investors may find ROCE useful. In our analysis, SW Umwelttechnik Stoiser & Wolschner's ROCE is meaningfully higher than the 6.1% average in the Construction industry. We would consider this a positive, as it suggests it is using capital more effectively than other similar companies. Independently of how SW Umwelttechnik Stoiser & Wolschner compares to its industry, its ROCE in absolute terms appears decent, and the company may be worthy of closer investigation.
Our data shows that SW Umwelttechnik Stoiser & Wolschner currently has an ROCE of 14%, compared to its ROCE of 6.7% 3 years ago. This makes us think about whether the company has been reinvesting shrewdly. You can see in the image below how SW Umwelttechnik Stoiser & Wolschner'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 misleading for companies in cyclical industries, with returns looking impressive during the boom times, but very weak during the busts. ROCE is only a point-in-time measure. If SW Umwelttechnik Stoiser & Wolschner is cyclical, it could make sense to check out this free graph of past earnings, revenue and cash flow.
How SW Umwelttechnik Stoiser & Wolschner's Current Liabilities Impact Its ROCE
Current liabilities are short term bills and invoices that need to be paid in 12 months or less. Due to the way ROCE is calculated, a high level of current liabilities makes a company look as though it has less capital employed, and thus can (sometimes unfairly) boost the ROCE. To counter this, investors can check if a company has high current liabilities relative to total assets.
SW Umwelttechnik Stoiser & Wolschner has total liabilities of €34m and total assets of €94m. Therefore its current liabilities are equivalent to approximately 36% of its total assets. SW Umwelttechnik Stoiser & Wolschner has a middling amount of current liabilities, increasing its ROCE somewhat.
The Bottom Line On SW Umwelttechnik Stoiser & Wolschner's ROCE
SW Umwelttechnik Stoiser & Wolschner's ROCE does look good, but the level of current liabilities also contribute to that. SW Umwelttechnik Stoiser & Wolschner looks strong on this analysis, but there are plenty of other companies that could be a good opportunity . Here is a free list of companies growing earnings rapidly.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.
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. Thank you for reading.
