H+H International (CPH:HH) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at H+H International (CPH:HH) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for H+H International:

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

0.15 = kr.446m ÷ (kr.3.5b - kr.508m) (Based on the trailing twelve months to March 2022).

Thus, H+H International has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Basic Materials industry average of 9.1% it's much better.

View our latest analysis for H+H International

Above you can see how the current ROCE for H+H International compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for H+H International.

What Can We Tell From H+H International's ROCE Trend?

Investors would be pleased with what's happening at H+H International. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The amount of capital employed has increased too, by 203%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From H+H International'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 H+H International has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 43% return over the last five years. In light of that, we think it's worth looking further into this stock because if H+H International can keep these trends up, it could have a bright future ahead.

If you'd like to know more about H+H International, we've spotted 2 warning signs, and 1 of them is significant.

While H+H International may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.