The Underlying Trends At Schindler Holding (VTX:SCHN) Look Strong

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Ergo, when we looked at the ROCE trends at Schindler Holding (VTX:SCHN), we liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Schindler Holding is:

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

0.21 = CHF1.1b ÷ (CHF11b - CHF5.3b) (Based on the trailing twelve months to September 2020).

Thus, Schindler Holding has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Machinery industry average of 8.1%.

See our latest analysis for Schindler Holding

Above you can see how the current ROCE for Schindler Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Schindler Holding.

How Are Returns Trending?

We'd be pretty happy with returns on capital like Schindler Holding. The company has employed 34% more capital in the last five years, and the returns on that capital have remained stable at 21%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Schindler Holding can keep this up, we'd be very optimistic about its future.

On a side note, Schindler Holding's current liabilities are still rather high at 50% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. Therefore it's no surprise that shareholders have earned a respectable 78% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

While Schindler Holding looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SCHN is currently trading for a fair price.

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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