The Return Trends At Orascom Development Holding (VTX:ODHN) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Orascom Development Holding's (VTX:ODHN) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Orascom Development Holding is:

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

0.085 = CHF103m ÷ (CHF1.8b - CHF614m) (Based on the trailing twelve months to December 2022).

Therefore, Orascom Development Holding has an ROCE of 8.5%. On its own that's a low return, but compared to the average of 6.5% generated by the Hospitality industry, it's much better.

See our latest analysis for Orascom Development Holding

Above you can see how the current ROCE for Orascom Development 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 Orascom Development Holding.

The Trend Of ROCE

Orascom Development Holding has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 8.5% on its capital. And unsurprisingly, like most companies trying to break into the black, Orascom Development Holding is utilizing 73% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 34%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Orascom Development Holding has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

To the delight of most shareholders, Orascom Development Holding has now broken into profitability. Given the stock has declined 57% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing: We've identified 2 warning signs with Orascom Development Holding (at least 1 which can't be ignored) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.