Should You Invest In Procter & Gamble Hygiene and Health Care (NSE:PGHH)?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Procter & Gamble Hygiene and Health Care (NSE:PGHH) looks great, so lets see what the trend can tell us.

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

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. Analysts use this formula to calculate it for Procter & Gamble Hygiene and Health Care:

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

0.46 = ₹5.7b ÷ (₹18b - ₹6.0b) (Based on the trailing twelve months to June 2020).

Therefore, Procter & Gamble Hygiene and Health Care has an ROCE of 46%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 19%.

See our latest analysis for Procter & Gamble Hygiene and Health Care

Historical performance is a great place to start when researching a stock so above you can see the gauge for Procter & Gamble Hygiene and Health Care's ROCE against it's prior returns. If you're interested in investigating Procter & Gamble Hygiene and Health Care's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Procter & Gamble Hygiene and Health Care's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 26% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Procter & Gamble Hygiene and Health Care's ROCE

To sum it up, Procter & Gamble Hygiene and Health Care is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 83% awarded to those who held the stock over the last five years, you could argue that these trends are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Procter & Gamble Hygiene and Health Care and understanding this should be part of your investment process.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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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