Yahoo Finance Hain Celestial Group's (NASDAQ:HAIN) Returns On Capital Tell Us There Is Reason To Feel Uneasy
When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. On that note, looking into Hain Celestial Group (NASDAQ:HAIN), we weren't too upbeat about how things were going.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Hain Celestial Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.05 = US$110m ÷ (US$2.4b - US$246m) (Based on the trailing twelve months to December 2022).
Thus, Hain Celestial Group has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Food industry average of 10%.
Check out our latest analysis for Hain Celestial Group
In the above chart we have measured Hain Celestial Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hain Celestial Group.
The Trend Of ROCE
In terms of Hain Celestial Group's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 7.4% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Hain Celestial Group to turn into a multi-bagger.
In Conclusion...
In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors haven't taken kindly to these developments, since the stock has declined 44% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
One more thing: We've identified 3 warning signs with Hain Celestial Group (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.
While Hain Celestial Group 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.
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