Returns on Capital Paint A Bright Future For Interroll Holding (VTX:INRN)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Interroll Holding (VTX:INRN) we really 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. The formula for this calculation on Interroll Holding is:

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

0.28 = CHF95m ÷ (CHF469m - CHF130m) (Based on the trailing twelve months to December 2020).

Thus, Interroll Holding has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 9.6% earned by companies in a similar industry.

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'd like, you can check out the forecasts from the analysts covering Interroll Holding here for free.

The Trend Of ROCE

Investors would be pleased with what's happening at Interroll Holding. Over the last five years, returns on capital employed have risen substantially to 28%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 51%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In Conclusion...

In summary, it's great to see that Interroll Holding can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 337% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 1 warning sign with Interroll Holding and understanding it should be part of your investment process.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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