Returns At H+H International (CPH:HH) Are On The Way Up

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So on that note, H+H International (CPH:HH) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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 H+H International is:

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

0.16 = kr.498m ÷ (kr.3.7b - kr.593m) (Based on the trailing twelve months to June 2022).

So, H+H International has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Basic Materials industry.

Check out our latest analysis for H+H International

In the above chart we have measured H+H International's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for H+H International.

How Are Returns Trending?

Investors would be pleased with what's happening at H+H International. The data shows that returns on capital have increased substantially over the last five years to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 213% more capital is being employed now too. So we're very much inspired by what we're seeing at H+H International thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, H+H International has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Considering the stock has delivered 7.5% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you want to continue researching H+H International, you might be interested to know about the 1 warning sign that our analysis has discovered.

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.