Stock Analysis

Returns On Capital Are A Standout For Harvest Technology (MTSE:HRV)

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MTSE:HRV
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Speaking of which, we noticed some great changes in Harvest Technology's (MTSE:HRV) returns on capital, so let's have a look.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Harvest Technology is:

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

0.32 = €4.4m ÷ (€21m - €6.7m) (Based on the trailing twelve months to December 2020).

So, Harvest Technology has an ROCE of 32%. In absolute terms that's a great return and it's even better than the IT industry average of 12%.

See our latest analysis for Harvest Technology

roce
MTSE:HRV Return on Capital Employed June 3rd 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for Harvest Technology's ROCE against it's prior returns. If you'd like to look at how Harvest Technology has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Harvest Technology's ROCE Trending?

Harvest Technology has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last four years, the ROCE has climbed 511% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In Conclusion...

To bring it all together, Harvest Technology has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 9.8% return over the last year. In light of that, we think it's worth looking further into this stock because if Harvest Technology can keep these trends up, it could have a bright future ahead.

If you want to continue researching Harvest Technology, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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