HORNBACH Holding KGaA (ETR:HBH) Is Looking To Continue Growing Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at HORNBACH Holding KGaA (ETR:HBH) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for HORNBACH Holding KGaA:

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

0.10 = €325m ÷ (€4.0b - €845m) (Based on the trailing twelve months to February 2021).

Thus, HORNBACH Holding KGaA has an ROCE of 10%. That's a pretty standard return and it's in line with the industry average of 10%.

View our latest analysis for HORNBACH Holding KGaA

In the above chart we have measured HORNBACH Holding 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 report on analyst forecasts for the company.

What Does the ROCE Trend For HORNBACH Holding KGaA Tell Us?

Investors would be pleased with what's happening at HORNBACH Holding KGaA. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 53%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On HORNBACH Holding KGaA's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what HORNBACH Holding KGaA has. Since the stock has returned a solid 82% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

HORNBACH Holding KGaA does have some risks, we noticed 3 warning signs (and 1 which can't be ignored) we think you should know about.

While HORNBACH Holding KGaA 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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