Returns Are Gaining Momentum At Hampidjan Hf (ICE:HAMP)

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. So on that note, Hampidjan Hf (ICE:HAMP) looks quite promising in regards to its trends of return on capital.

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

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. The formula for this calculation on Hampidjan Hf is:

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

0.11 = €23m ÷ (€260m - €45m) (Based on the trailing twelve months to June 2021).

Therefore, Hampidjan Hf has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Machinery industry.

See our latest analysis for Hampidjan Hf

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

So How Is Hampidjan Hf's ROCE Trending?

We like the trends that we're seeing from Hampidjan Hf. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 38%. So we're very much inspired by what we're seeing at Hampidjan Hf thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Hampidjan Hf has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing Hampidjan Hf we've found 3 warning signs (2 are concerning!) that you should be aware of before investing here.

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.