Empresas Hites' (SNSE:HITES) Returns Have Hit A Wall

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Empresas Hites (SNSE:HITES) and its ROCE trend, we weren't exactly thrilled.

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 Empresas Hites:

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

0.095 = CL$31b ÷ (CL$418b - CL$90b) (Based on the trailing twelve months to June 2021).

Therefore, Empresas Hites has an ROCE of 9.5%. In absolute terms, that's a low return, but it's much better than the Multiline Retail industry average of 7.5%.

Check out our latest analysis for Empresas Hites

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Empresas Hites, check out these free graphs here.

How Are Returns Trending?

The returns on capital haven't changed much for Empresas Hites in recent years. The company has consistently earned 9.5% for the last five years, and the capital employed within the business has risen 42% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In summary, Empresas Hites has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 61% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Empresas Hites does come with some risks though, we found 5 warning signs in our investment analysis, and 1 of those can't be ignored...

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.

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.

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