There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in ElringKlinger’s (ETR:ZIL2) returns on capital, so let’s have a look.
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on ElringKlinger is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.026 = €31m ÷ (€1.9b – €656m) (Based on the trailing twelve months to September 2025).
Thus, ElringKlinger has an ROCE of 2.6%. In absolute terms, that’s a low return and it also under-performs the Auto Components industry average of 8.5%.
View our latest analysis for ElringKlinger
Above you can see how the current ROCE for ElringKlinger 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 ElringKlinger .
Even though ROCE is still low in absolute terms, it’s good to see it’s heading in the right direction. The figures show that over the last five years, ROCE has grown 262% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company’s efficiencies. On that front, things are looking good so it’s worth exploring what management has said about growth plans going forward.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 35% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. It’s worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.
In summary, we’re delighted to see that ElringKlinger has been able to increase efficiencies and earn higher rates of return on the same amount of capital. However the stock is down a substantial 70% in the last five years so there could be other areas of the business hurting its prospects. Still, it’s worth doing some further research to see if the trends will continue into the future.
On a separate note, we’ve found 2 warning signs for ElringKlinger you’ll probably want to know about.
While ElringKlinger isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.