Slowing Rates Of Return At Empresas Hites (SNSE:HITES) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Empresas Hites' (SNSE:HITES) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Empresas Hites, this is the formula:

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

0.11 = CL$36b ÷ (CL$447b - CL$114b) (Based on the trailing twelve months to September 2022).

So, Empresas Hites has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Multiline Retail industry average of 5.3% it's much better.

View 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're interested in investigating Empresas Hites' past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 41% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Empresas Hites has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Empresas Hites' ROCE

The main thing to remember is that Empresas Hites has proven its ability to continually reinvest at respectable rates of return. Despite these impressive fundamentals, the stock has collapsed 79% over the last five years, so there is likely other factors affecting the company's future prospects. That's why it's worth looking further into this stock because while these fundamentals look good, there could be other issues with the business.

If you want to continue researching Empresas Hites, you might be interested to know about the 4 warning signs that our analysis has discovered.

While Empresas Hites isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.