Here's What's Concerning About Hain Celestial Group's (NASDAQ:HAIN) Returns On Capital

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after glancing at the trends within Hain Celestial Group (NASDAQ:HAIN), we weren't too hopeful.

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. Analysts use this formula to calculate it for Hain Celestial Group:

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

0.04 = US$79m ÷ (US$2.2b - US$247m) (Based on the trailing twelve months to September 2023).

So, Hain Celestial Group has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Food industry average of 11%.

Check out our latest analysis for Hain Celestial Group

In the above chart we have measured Hain Celestial Group's 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 Hain Celestial Group here for free.

How Are Returns Trending?

The trend of returns that Hain Celestial Group is generating are raising some concerns. Unfortunately, returns have declined substantially over the last five years to the 4.0% we see today. On top of that, the business is utilizing 20% less capital within its operations. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. If these underlying trends continue, we wouldn't be too optimistic going forward.

What We Can Learn From Hain Celestial Group's ROCE

In summary, it's unfortunate that Hain Celestial Group is shrinking its capital base and also generating lower returns. Investors haven't taken kindly to these developments, since the stock has declined 45% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to continue researching Hain Celestial Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Hain Celestial Group 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. 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.