Returns On Capital At H&R GmbH KGaA (ETR:2HRA) Have Stalled

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think H&R GmbH KGaA (ETR:2HRA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. The formula for this calculation on H&R GmbH KGaA is:

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

0.054 = €36m ÷ (€971m - €314m) (Based on the trailing twelve months to March 2024).

Thus, H&R GmbH KGaA has an ROCE of 5.4%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.8%.

See our latest analysis for H&R GmbH KGaA

In the above chart we have measured H&R GmbH KGaA's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for H&R GmbH KGaA .

So How Is H&R GmbH KGaA's ROCE Trending?

There hasn't been much to report for H&R GmbH KGaA's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if H&R GmbH KGaA doesn't end up being a multi-bagger in a few years time.

In Conclusion...

In a nutshell, H&R GmbH KGaA has been trudging along with the same returns from the same amount of capital over the last five years. And in the last five years, the stock has given away 30% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think H&R GmbH KGaA has the makings of a multi-bagger.

On a final note, we've found 2 warning signs for H&R GmbH KGaA that we think you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com