Investors Could Be Concerned With Hamburger Hafen und Logistik's (ETR:HHFA) Returns On Capital

If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after we looked into Hamburger Hafen und Logistik (ETR:HHFA), the trends above didn't look too great.

What Is 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. To calculate this metric for Hamburger Hafen und Logistik, this is the formula:

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

0.048 = €123m ÷ (€3.1b - €478m) (Based on the trailing twelve months to September 2024).

Therefore, Hamburger Hafen und Logistik has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 12%.

See our latest analysis for Hamburger Hafen und Logistik

In the above chart we have measured Hamburger Hafen und Logistik'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 Hamburger Hafen und Logistik .

What Does the ROCE Trend For Hamburger Hafen und Logistik Tell Us?

In terms of Hamburger Hafen und Logistik's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 8.8%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Hamburger Hafen und Logistik becoming one if things continue as they have.

The Bottom Line On Hamburger Hafen und Logistik's ROCE

In summary, it's unfortunate that Hamburger Hafen und Logistik is generating lower returns from the same amount of capital. And long term shareholders have watched their investments stay flat over the last five years. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

One more thing, we've spotted 1 warning sign facing Hamburger Hafen und Logistik that you might find interesting.

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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.