Investors Met With Slowing Returns on Capital At Interroll Holding (VTX:INRN)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Interroll Holding's (VTX:INRN) trend of ROCE, we liked what we saw.

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. To calculate this metric for Interroll Holding, this is the formula:

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

0.19 = CHF84m ÷ (CHF544m - CHF104m) (Based on the trailing twelve months to December 2023).

So, Interroll Holding has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 15% it's much better.

See 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 .

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 19% and the business has deployed 44% more capital into its operations. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Interroll Holding's ROCE

In the end, Interroll Holding has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 52% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

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.

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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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.

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