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# Is Vereinigte Filzfabriken AG (MUN:VFF) Creating Value For Shareholders?

Today we'll look at Vereinigte Filzfabriken AG (MUN:VFF) and reflect on its potential as an investment. In particular, we'll consider its Return On Capital Employed (ROCE), as that can give us insight into how profitably the company is able to employ capital in its business.

First of all, we'll work out how to calculate ROCE. Second, we'll look at its ROCE compared to similar companies. And finally, we'll look at how its current liabilities are impacting its ROCE.

### Return On Capital Employed (ROCE): What is it?

ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Generally speaking a higher ROCE is better. Overall, it is a valuable metric that has its flaws. 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'.

### How Do You Calculate Return On Capital Employed?

The formula for calculating the return on capital employed is:

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

Or for Vereinigte Filzfabriken:

0.13 = â‚¬708k Ã· (â‚¬9.6m - â‚¬4.4m) (Based on the trailing twelve months to June 2018.)

So, Vereinigte Filzfabriken has an ROCE of 13%.

### Does Vereinigte Filzfabriken Have A Good ROCE?

ROCE can be useful when making comparisons, such as between similar companies. It appears that Vereinigte Filzfabriken's ROCE is fairly close to the Luxury industry average of 15%. Regardless of where Vereinigte Filzfabriken sits next to its industry, its ROCE in absolute terms appears satisfactory, and this company could be worth a closer look.

As we can see, Vereinigte Filzfabriken currently has an ROCE of 13%, less than the 29% it reported 3 years ago. Therefore we wonder if the company is facing new headwinds.

When considering this metric, keep in mind that it is backwards looking, and not necessarily predictive. Companies in cyclical industries can be difficult to understand using ROCE, as returns typically look high during boom times, and low during busts. ROCE is only a point-in-time measure. How cyclical is Vereinigte Filzfabriken? You can see for yourself by looking at this free graph of past earnings, revenue and cash flow.

### Do Vereinigte Filzfabriken's Current Liabilities Skew Its ROCE?

Short term (or current) liabilities, are things like supplier invoices, overdrafts, or tax bills that need to be paid within 12 months. 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 check the impact of this, we calculate if a company has high current liabilities relative to its total assets.

Vereinigte Filzfabriken has total assets of â‚¬9.6m and current liabilities of â‚¬4.4m. Therefore its current liabilities are equivalent to approximately 45% of its total assets. Vereinigte Filzfabriken has a medium level of current liabilities, which would boost the ROCE.

### The Bottom Line On Vereinigte Filzfabriken's ROCE

With a decent ROCE, the company could be interesting, but remember that the level of current liabilities make the ROCE look better. Vereinigte Filzfabriken shapes up well under this analysis, but it is far from the only business delivering excellent numbers . You might also want to check this free collection of companies delivering excellent earnings growth.

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.