Capital Allocation Trends At Interroll Holding (VTX:INRN) Aren't Ideal

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Having said that, from a first glance at Interroll Holding (VTX:INRN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Interroll Holding:

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

0.15 = CHF78m ÷ (CHF591m - CHF87m) (Based on the trailing twelve months to December 2024).

Therefore, Interroll Holding has an ROCE of 15%. That's a pretty standard return and it's in line with the industry average of 15%.

View our latest analysis for Interroll Holding

In the above chart we have measured Interroll 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 analyst report for Interroll Holding .

What Can We Tell From Interroll Holding's ROCE Trend?

When we looked at the ROCE trend at Interroll Holding, we didn't gain much confidence. To be more specific, ROCE has fallen from 22% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On Interroll Holding's ROCE

To conclude, we've found that Interroll Holding is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 53% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Interroll Holding could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for INRN on our platform quite valuable.

While Interroll Holding isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.