Returns On Capital - An Important Metric For Semperit Holding (VIE:SEM)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Semperit Holding (VIE:SEM) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Semperit Holding:

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

0.076 = €47m ÷ (€801m - €185m) (Based on the trailing twelve months to June 2020).

Therefore, Semperit Holding has an ROCE of 7.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.6%.

See our latest analysis for Semperit Holding

Above you can see how the current ROCE for Semperit Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Semperit Holding here for free.

So How Is Semperit Holding's ROCE Trending?

Semperit Holding has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 49% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Semperit Holding's ROCE

To bring it all together, Semperit Holding has done well to increase the returns it's generating from its capital employed. Given the stock has declined 48% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 4 warning signs we've spotted with Semperit Holding (including 1 which is makes us a bit uncomfortable) .

While Semperit Holding 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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