# Robert Half International Inc (NYSE:RHI): A Look At Return On Capital

This analysis is intended to introduce important early concepts to people who are starting to invest and want to better understand how you can grow your money by investing in Robert Half International Inc (NYSE:RHI).

Robert Half International stock represents an ownership share in the company. As a result, your investment is being put to work to fund operations and if you want to earn an attractive return on your investment, the business needs to be making an adequate amount of money from the funds you provide. This is because the actual cash flow generated by the business dictates the potential for income (dividends) and capital appreciation (price increases), which are the two ways to achieve positive returns when buying a stock. Therefore, looking at how efficiently Robert Half International is able to use capital to create earnings will help us understand your potential return. Investors use many different metrics but the analysis below focuses on return on capital employed (ROCE). Let’s take a look at what it can tell us.

### Calculating Return On Capital Employed for RHI

Choosing to invest in Robert Half International comes at the cost of investing in another potentially favourable company. Therefore all else aside, your investment in a certain company represents a vote of confidence that the money used to buy the stock will grow larger than if invested elsewhere. So the business’ ability to grow the size of your capital is very important and can be assessed by comparing the return on capital you can get on your investment with a hurdle rate that depends on the other return possibilities you can identify. To determine Robert Half International’s capital return we will use ROCE, which tells us how much the company makes from the capital employed in their operations (for things like machinery, wages etc). Take a look at the formula box beneath:

ROCE Calculation for RHI

Return on Capital Employed (ROCE) = Earnings Before Tax (EBT) ÷ (Capital Employed)

Capital Employed = (Total Assets – Current Liabilities)

∴ ROCE = US\$566m ÷ (US\$2.0b – US\$896m) = 49%

As you can see, RHI earned \$49.4 from every \$100 you invested over the previous twelve months. This shows Robert Half International provides a great return on capital employed that is well above the 15% ROCE that is typically considered to be a strong benchmark. As a result, if RHI is clever with their reinvestments or dividend payments, investors can grow their capital at an enviable rate over time.

### Can any of this change?

Although Robert Half International is in a favourable position, you should know that this could change if the company is unable to maintain a strong ROCE above the benchmark, which will depend on the behaviour of the underlying variables (EBT and capital employed). Therefore, investors need to be confident in the trend of the inputs in the formula above, so that Robert Half International will continue the solid returns. If you go back three years, you’ll find that RHI’s ROCE has decreased from 54%. With this, the current earnings of US\$566m improved from US\$497m however capital employed rose by a proportionally greater amount in response to a hike in the level of total assets , which means that although earnings have increased, RHI requires more capital to produce each \$1 of earnings.

### Next Steps

Despite RHI’s downward trend in ROCE in the recent past, the company still remains an attractive candidate that is capable of producing solid capital returns and a potentially strong return on investment. It is important to know that ROCE does not dictate returns alone, so you need to consider other fundamentals in the business such as future prospects and valuation. Without considering these fundamentals, you cannot be sure if the downward path is a signal to run, or just a blip in an otherwise solid return profile. If you’re building your portfolio and want to take a deeper look, I’ve added a few links below that will help you further evaluate RHI or other alternatives.

1. Future Outlook: What are well-informed industry analysts predicting for RHI’s future growth? Take a look at our free research report of analyst consensus for RHI’s outlook.
2. Valuation: What is RHI worth today? Is the stock undervalued, even if its ROCE is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether RHI is currently mispriced by the market.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.