Investors Will Want HusCompagniet's (CPH:HUSCO) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at HusCompagniet (CPH:HUSCO) and its trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for HusCompagniet, this is the formula:

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

0.14 = kr.355m ÷ (kr.3.6b - kr.1.0b) (Based on the trailing twelve months to June 2022).

So, HusCompagniet has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 11% it's much better.

View our latest analysis for HusCompagniet

Above you can see how the current ROCE for HusCompagniet compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering HusCompagniet here for free.

The Trend Of ROCE

HusCompagniet's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 58% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. 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

In summary, we're delighted to see that HusCompagniet has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 61% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

HusCompagniet does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is significant...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.