We're Watching These Trends At Hill International (NYSE:HIL)

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Hill International (NYSE:HIL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Hill International, this is the formula:

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

0.084 = US$16m ÷ (US$282m - US$96m) (Based on the trailing twelve months to September 2020).

Therefore, Hill International has an ROCE of 8.4%. In absolute terms, that's a low return but it's around the Professional Services industry average of 10%.

View our latest analysis for Hill International

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

How Are Returns Trending?

Over the past five years, Hill International's ROCE has remained relatively flat while the business is using 38% less capital than before. This indicates to us that assets are being sold and thus the business is likely shrinking, which you'll remember isn't the typical ingredients for an up-and-coming multi-bagger. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

What We Can Learn From Hill International's ROCE

It's a shame to see that Hill International is effectively shrinking in terms of its capital base. Unsurprisingly then, the total return to shareholders over the last five years has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you want to know some of the risks facing Hill International we've found 3 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

While Hill International 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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