IVF Hartmann Holding (VTX:VBSN) Will Be Hoping To Turn Its Returns On Capital Around

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 IVF Hartmann Holding (VTX:VBSN) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on IVF Hartmann Holding is:

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

0.15 = CHF21m ÷ (CHF181m - CHF38m) (Based on the trailing twelve months to December 2020).

Thus, IVF Hartmann Holding has an ROCE of 15%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Medical Equipment industry average of 14%.

View our latest analysis for IVF Hartmann Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for IVF Hartmann Holding's ROCE against it's prior returns. If you're interested in investigating IVF Hartmann Holding's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

When we looked at the ROCE trend at IVF Hartmann Holding, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 15% from 19% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From IVF Hartmann Holding's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that IVF Hartmann Holding is reinvesting for growth and has higher sales as a result. In light of this, the stock has only gained 3.3% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

On a final note, we've found 1 warning sign for IVF Hartmann Holding that we think you should be aware of.

While IVF Hartmann Holding may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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