Should We Be Excited About The Trends Of Returns At Heavitree Brewery (LON:HVTA)?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Heavitree Brewery (LON:HVTA) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Heavitree Brewery is:

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

0.081 = UK£1.5m ÷ (UK£20m - UK£2.4m) (Based on the trailing twelve months to April 2020).

So, Heavitree Brewery has an ROCE of 8.1%. In absolute terms, that's a low return, but it's much better than the Hospitality industry average of 5.5%.

View our latest analysis for Heavitree Brewery

Historical performance is a great place to start when researching a stock so above you can see the gauge for Heavitree Brewery's ROCE against it's prior returns. If you're interested in investigating Heavitree Brewery's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

There hasn't been much to report for Heavitree Brewery's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Heavitree Brewery to be a multi-bagger going forward.

The Bottom Line On Heavitree Brewery's ROCE

In a nutshell, Heavitree Brewery has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 40% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Heavitree Brewery, we've discovered 3 warning signs that you should be aware of.

While Heavitree Brewery isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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