Hilton Worldwide Holdings (NYSE:HLT) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Hilton Worldwide Holdings' (NYSE:HLT) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Hilton Worldwide Holdings is:

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

0.14 = US$1.8b ÷ (US$15b - US$3.2b) (Based on the trailing twelve months to June 2022).

Thus, Hilton Worldwide Holdings has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 9.7% generated by the Hospitality industry.

See our latest analysis for Hilton Worldwide Holdings

In the above chart we have measured Hilton Worldwide Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Hilton Worldwide Holdings here for free.

So How Is Hilton Worldwide Holdings' ROCE Trending?

Hilton Worldwide Holdings has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 71% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Hilton Worldwide Holdings' ROCE

As discussed above, Hilton Worldwide Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. 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.

One more thing: We've identified 2 warning signs with Hilton Worldwide Holdings (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.