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What financial metrics can indicate to us that a company is maturing or even in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. And from a first read, things don't look too good at Hamburger Hafen und Logistik (ETR:HHFA), so let's see why.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Hamburger Hafen und Logistik is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.048 = €123m ÷ (€3.1b - €478m) (Based on the trailing twelve months to September 2024).
So, Hamburger Hafen und Logistik has an ROCE of 4.8%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 12%.
Check out our latest analysis for Hamburger Hafen und Logistik
Above you can see how the current ROCE for Hamburger Hafen und Logistik compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Hamburger Hafen und Logistik .
So How Is Hamburger Hafen und Logistik's ROCE Trending?
We are a bit worried about the trend of returns on capital at Hamburger Hafen und Logistik. Unfortunately the returns on capital have diminished from the 8.8% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Hamburger Hafen und Logistik to turn into a multi-bagger.
Our Take On Hamburger Hafen und Logistik's ROCE
In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. It should come as no surprise then that the stock has fallen 15% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.