This analysis is intended to introduce important early concepts to people who are starting to invest and want a simplistic look at the return on Hutter & Schrantz Stahlbau AG (WBAG:HST) stock.
Hutter & Schrantz Stahlbau stock represents an ownership share in the company. Owing to this, it is important that the underlying business is producing a sufficient amount of income from the capital invested by stockholders. This is because the actual cash flow generated by the business dictates the potential for income (dividends) and capital appreciation (price increases), which are the two ways to achieve positive returns when buying a stock. Therefore, looking at how efficiently Hutter & Schrantz Stahlbau is able to use capital to create earnings will help us understand your potential return. Investors use many different metrics but the analysis below focuses on return on capital employed (ROCE). Let’s take a look at what it can tell us.View our latest analysis for Hutter & Schrantz Stahlbau
ROCE: Explanation and Calculation
When you choose to invest in a company, there is an opportunity cost because that money could’ve been invested elsewhere. The cost of missing out on another opportunity comes in the form of the potential long term gain you could’ve received, which is dependent on the gap between the return on capital you could’ve achieved and that of the company you invested in. Hence, capital returns are very important, and should be examined before you invest in conjunction with a certain benchmark that represents the minimum return you require to be compensated for the risk of missing out on other potentially lucrative investments. A good metric to use is return on capital employed (ROCE), which helps us gauge how much income can be created from the funds needed to operate the business. This metric will tell us if Hutter & Schrantz Stahlbau is good at growing investor capital. HST’s ROCE is calculated below:
ROCE Calculation for HST
Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)
Capital Employed = (Total Assets – Current Liabilities)
∴ ROCE = €1.97M ÷ (€78.38M – €16.28M) = 3.17%
HST’s 3.17% ROCE means that for every €100 you invest, the company creates €3.2. A good ROCE hurdle you should aim for in your investments is 15%, which HST has missed by a wide margin, meaning the company creates a poor amount of earnings from capital employed.
A deeper look
HST doesn’t return an attractive amount on capital, but this will only continue if the company is unable to increase earnings or decrease current capital requirements. So it is important for investors to understand what is going on under the hood and look at how these variables have been behaving. If you go back three years, you’ll find that HST’s ROCE has decreased from 21.01%. In this time, earnings have fallen from €11.02M to €1.97M and capital employed has increased due to a hike in the level of total assets and decrease in current liabilities (less borrowed money) , which means the company’s ROCE has shrunk as a result of falling earnings and simultaneous increases in capital requirements.
HST’s investors have experienced a downward trend in ROCE and it is currently at a level that makes us question whether the company is capable of providing a suitable return on investment. However, it is important to know that ROCE does not dictate returns alone, so you need to consider other fundamentals in the business such as the management team. If you’re interested in diving deeper, take a look at what I’ve linked below for further information on these fundamentals and other potential investment opportunities.
- Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for Hutter & Schrantz Stahlbau’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.