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

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Semperit Holding's (VIE:SEM) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Semperit Holding is:

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

0.14 = €87m ÷ (€773m - €159m) (Based on the trailing twelve months to September 2020).

Therefore, Semperit Holding has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 10% generated by the Machinery industry.

See our latest analysis for Semperit Holding

In the above chart we have measured Semperit Holding's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Semperit Holding's ROCE Trending?

Semperit Holding has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 223% 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.

The Bottom Line

In summary, we're delighted to see that Semperit Holding has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 19% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 4 warning signs for Semperit Holding (1 doesn't sit too well with us) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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