Mercedes-Benz Group (ETR:MBG) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Mercedes-Benz Group (ETR:MBG) looks quite promising in regards to its trends of return on capital.

We've discovered 3 warning signs about Mercedes-Benz Group. View them for free.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Mercedes-Benz Group, this is the formula:

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

0.066 = €13b ÷ (€265b - €75b) (Based on the trailing twelve months to December 2024).

Therefore, Mercedes-Benz Group has an ROCE of 6.6%. Ultimately, that's a low return and it under-performs the Auto industry average of 12%.

See our latest analysis for Mercedes-Benz Group

Above you can see how the current ROCE for Mercedes-Benz Group 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 Mercedes-Benz Group .

How Are Returns Trending?

Mercedes-Benz Group has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 417% in that same time. 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.

What We Can Learn From Mercedes-Benz Group's ROCE

To bring it all together, Mercedes-Benz Group has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 169% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Mercedes-Benz Group does have some risks, we noticed 3 warning signs (and 2 which are a bit concerning) we think you should know about.

While Mercedes-Benz Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.