Slowing Rates Of Return At EMS-CHEMIE HOLDING (VTX:EMSN) Leave Little Room For Excitement

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So while EMS-CHEMIE HOLDING (VTX:EMSN) has a high ROCE right now, lets see what we can decipher from how returns are changing.

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. Analysts use this formula to calculate it for EMS-CHEMIE HOLDING:

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

0.29 = CHF643m ÷ (CHF2.6b - CHF405m) (Based on the trailing twelve months to June 2022).

So, EMS-CHEMIE HOLDING has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 12%.

View our latest analysis for EMS-CHEMIE HOLDING

In the above chart we have measured EMS-CHEMIE HOLDING's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For EMS-CHEMIE HOLDING Tell Us?

Over the past five years, EMS-CHEMIE HOLDING's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So it may not be a multi-bagger in the making, but given the decent 29% return on capital, it'd be difficult to find fault with the business's current operations. That being the case, it makes sense that EMS-CHEMIE HOLDING has been paying out 100% of its earnings to its shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

The Bottom Line

Although is allocating it's capital efficiently to generate impressive returns, it isn't compounding its base of capital, which is what we'd see from a multi-bagger. And investors may be recognizing these trends since the stock has only returned a total of 8.6% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we've found 1 warning sign for EMS-CHEMIE HOLDING that we think you should be aware of.

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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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.