HELLA GmbH KGaA (ETR:HLE) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So when we looked at HELLA GmbH KGaA (ETR:HLE) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on HELLA GmbH KGaA is:

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

0.12 = €552m ÷ (€7.3b - €2.6b) (Based on the trailing twelve months to September 2024).

Therefore, HELLA GmbH KGaA has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Auto Components industry average of 8.8% it's much better.

View our latest analysis for HELLA GmbH KGaA

In the above chart we have measured HELLA GmbH KGaA'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 analyst report for HELLA GmbH KGaA .

What Can We Tell From HELLA GmbH KGaA's ROCE Trend?

HELLA GmbH KGaA's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 23% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

To bring it all together, HELLA GmbH KGaA has done well to increase the returns it's generating from its capital employed. And a remarkable 111% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if HELLA GmbH KGaA can keep these trends up, it could have a bright future ahead.

While HELLA GmbH KGaA looks impressive, no company is worth an infinite price. The intrinsic value infographic for HLE helps visualize whether it is currently trading for a fair price.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.