Does CPH Chemie + Papier Holding (VTX:CPHN) Have The Makings Of A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, we've noticed some promising trends at CPH Chemie + Papier Holding (VTX:CPHN) so let's look a bit deeper.

What is 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. Analysts use this formula to calculate it for CPH Chemie + Papier Holding:

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

0.07 = CHF42m ÷ (CHF691m - CHF87m) (Based on the trailing twelve months to June 2020).

So, CPH Chemie + Papier Holding has an ROCE of 7.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.5%.

View our latest analysis for CPH Chemie + Papier Holding

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'd like, you can check out the forecasts from the analysts covering CPH Chemie + Papier Holding here for free.

What Does the ROCE Trend For CPH Chemie + Papier Holding Tell Us?

Shareholders will be relieved that CPH Chemie + Papier Holding has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 7.0% on its capital. 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. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line

As discussed above, CPH Chemie + Papier Holding appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know more about CPH Chemie + Papier Holding, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

While CPH Chemie + Papier 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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