Yahoo Finance H&R GmbH KGaA (ETR:2HRA) May Have Issues Allocating Its Capital
There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at H&R GmbH KGaA (ETR:2HRA) and its ROCE trend, we weren't exactly thrilled.
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. The formula for this calculation on H&R GmbH KGaA is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.051 = €33m ÷ (€927m - €283m) (Based on the trailing twelve months to September 2023).
Thus, H&R GmbH KGaA has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.3%.
See our latest analysis for H&R GmbH KGaA
Above you can see how the current ROCE for H&R GmbH KGaA 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 H&R GmbH KGaA .
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at H&R GmbH KGaA doesn't inspire confidence. To be more specific, ROCE has fallen from 7.6% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
Our Take On H&R GmbH KGaA's ROCE
To conclude, we've found that H&R GmbH KGaA is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 25% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think H&R GmbH KGaA has the makings of a multi-bagger.
H&R GmbH KGaA does have some risks though, and we've spotted 2 warning signs for H&R GmbH KGaA that you might be interested in.
While H&R GmbH KGaA 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.
