Returns On Capital - An Important Metric For Hampidjan Hf (ICE:HAMP)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Hampidjan Hf (ICE:HAMP) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Hampidjan Hf is:

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

0.10 = €21m ÷ (€247m - €40m) (Based on the trailing twelve months to December 2020).

So, Hampidjan Hf has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 8.5% it's much better.

Check out our latest analysis for Hampidjan Hf

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Hampidjan Hf's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Hampidjan Hf is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 131%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Hampidjan Hf's ROCE

All in all, it's terrific to see that Hampidjan Hf is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 240% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing Hampidjan Hf we've found 3 warning signs (1 is potentially serious!) that you should be aware of before investing here.

While Hampidjan Hf 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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