Returns On Capital At Hamburger Hafen und Logistik (ETR:HHFA) Have Stalled

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Hamburger Hafen und Logistik (ETR:HHFA) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Hamburger Hafen und Logistik is:

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

0.096 = €234m ÷ (€2.8b - €366m) (Based on the trailing twelve months to December 2021).

Therefore, Hamburger Hafen und Logistik has an ROCE of 9.6%. On its own that's a low return, but compared to the average of 7.6% generated by the Infrastructure industry, it's much better.

View 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'd like, you can check out the forecasts from the analysts covering Hamburger Hafen und Logistik here for free.

What Can We Tell From Hamburger Hafen und Logistik's ROCE Trend?

There are better returns on capital out there than what we're seeing at Hamburger Hafen und Logistik. The company has consistently earned 9.6% for the last five years, and the capital employed within the business has risen 52% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Hamburger Hafen und Logistik's ROCE

In conclusion, Hamburger Hafen und Logistik has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 2.6% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Hamburger Hafen und Logistik (of which 1 is a bit concerning!) that you should know about.

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.