Stock Analysis

Here's What's Concerning About Brødrene Hartmann's (CPH:HART) Returns On Capital

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CPSE:HART
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Brødrene Hartmann (CPH:HART), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. The formula for this calculation on Brødrene Hartmann is:

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

0.026 = kr.64m ÷ (kr.3.2b - kr.804m) (Based on the trailing twelve months to September 2022).

Thus, Brødrene Hartmann has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Packaging industry average of 10%.

Check out the opportunities and risks within the XX Packaging industry.

roce
CPSE:HART Return on Capital Employed November 17th 2022

Above you can see how the current ROCE for Brødrene Hartmann compares to its prior returns on capital, but there's only so much you can tell from the past. 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 Brødrene Hartmann Tell Us?

When we looked at the ROCE trend at Brødrene Hartmann, we didn't gain much confidence. To be more specific, ROCE has fallen from 15% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

What We Can Learn From Brødrene Hartmann's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Brødrene Hartmann is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 17% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

Like most companies, Brødrene Hartmann does come with some risks, and we've found 1 warning sign that you should be aware of.

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.

Valuation is complex, but we're helping make it simple.

Find out whether Brødrene Hartmann is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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