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H C Slingsby (LON:SLNG) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 H C Slingsby's (LON:SLNG) returns on capital, so let's have a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for H C Slingsby, this is the formula:

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

0.027 = UK£293k ÷ (UK£16m - UK£4.6m) (Based on the trailing twelve months to December 2021).

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Therefore, H C Slingsby has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 14%.

View our latest analysis for H C Slingsby

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While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating H C Slingsby's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is H C Slingsby's ROCE Trending?

Shareholders will be relieved that H C Slingsby has broken into profitability. The company now earns 2.7% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by H C Slingsby has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On H C Slingsby's ROCE

In summary, we're delighted to see that H C Slingsby has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 353% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for H C Slingsby (of which 2 shouldn't be ignored!) that you should know about.

While H C Slingsby isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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