HELMA Eigenheimbau (ETR:H5E) Could Be Struggling To Allocate Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at HELMA Eigenheimbau (ETR:H5E), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

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 HELMA Eigenheimbau is:

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

0.071 = €23m ÷ (€449m - €130m) (Based on the trailing twelve months to December 2022).

Thus, HELMA Eigenheimbau has an ROCE of 7.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.1%.

View our latest analysis for HELMA Eigenheimbau

roce

Above you can see how the current ROCE for HELMA Eigenheimbau compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

In terms of HELMA Eigenheimbau's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 8.8% 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's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

To conclude, we've found that HELMA Eigenheimbau is reinvesting in the business, but returns have been falling. Since the stock has declined 55% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think HELMA Eigenheimbau has the makings of a multi-bagger.

One final note, you should learn about the 5 warning signs we've spotted with HELMA Eigenheimbau (including 1 which doesn't sit too well with us) .

While HELMA Eigenheimbau 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.

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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