Will The ROCE Trend At Hutter & Schrantz (VIE:HUS) Continue?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Hutter & Schrantz's (VIE:HUS) returns on capital, so let's have a look.

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

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. The formula for this calculation on Hutter & Schrantz is:

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

0.0074 = €67k ÷ (€13m - €3.9m) (Based on the trailing twelve months to December 2019).

So, Hutter & Schrantz has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Building industry average of 10%.

See our latest analysis for Hutter & Schrantz

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

What The Trend Of ROCE Can Tell Us

We're delighted to see that Hutter & Schrantz is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 0.7% which is no doubt a relief for some early shareholders. In regards to capital employed, Hutter & Schrantz is using 34% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 30% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

Our Take On Hutter & Schrantz's ROCE

In summary, it's great to see that Hutter & Schrantz has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has fallen 18% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 4 warning signs for Hutter & Schrantz (1 is a bit unpleasant) you should be aware of.

While Hutter & Schrantz 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. 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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