CPH Chemie + Papier Holding (VTX:CPHN) Shareholders Will Want The ROCE Trajectory To Continue

By
Simply Wall St
Published
May 20, 2021
SWX:CPHN
Source: Shutterstock

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 looked at CPH Chemie + Papier Holding (VTX:CPHN) and its trend of ROCE, 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 CPH Chemie + Papier Holding is:

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

0.04 = CHF25m ÷ (CHF704m - CHF90m) (Based on the trailing twelve months to December 2020).

So, CPH Chemie + Papier Holding has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Forestry industry average of 6.4%.

View our latest analysis for CPH Chemie + Papier Holding

roce
SWX:CPHN Return on Capital Employed May 21st 2021

Above you can see how the current ROCE for CPH Chemie + Papier Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

We're delighted to see that CPH Chemie + Papier Holding is reaping rewards from its investments and has now broken into profitability. The company now earns 4.0% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by CPH Chemie + Papier Holding has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

The Key Takeaway

To bring it all together, CPH Chemie + Papier Holding has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for CPH Chemie + Papier Holding (of which 1 shouldn't be ignored!) that you should know about.

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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