The Return Trends At Highlight Event and Entertainment (VTX:HLEE) Look Promising

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So on that note, Highlight Event and Entertainment (VTX:HLEE) looks quite promising in regards to its trends of return on capital.

We've discovered 3 warning signs about Highlight Event and Entertainment. View them for free.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Highlight Event and Entertainment, this is the formula:

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

0.00016 = CHF46k ÷ (CHF828m - CHF534m) (Based on the trailing twelve months to June 2024).

Thus, Highlight Event and Entertainment has an ROCE of 0.02%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 15%.

See our latest analysis for Highlight Event and Entertainment

Historical performance is a great place to start when researching a stock so above you can see the gauge for Highlight Event and Entertainment's ROCE against it's prior returns. If you'd like to look at how Highlight Event and Entertainment has performed in the past in other metrics, you can view this free graph of Highlight Event and Entertainment's past earnings, revenue and cash flow.

What Does the ROCE Trend For Highlight Event and Entertainment Tell Us?

We're delighted to see that Highlight Event and Entertainment is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. In regards to capital employed, Highlight Event and Entertainment is using 44% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 64% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

In Conclusion...

In the end, Highlight Event and Entertainment has proven it's capital allocation skills are good with those higher returns from less amount of capital. And since the stock has dived 79% over the last five years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

Highlight Event and Entertainment does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those make us uncomfortable...

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.