In This Article:
If you're looking for a multi-bagger, there's a few things to keep an eye out 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at HOCHTIEF (ETR:HOT), it didn't seem to tick all of these boxes.
Our free stock report includes 3 warning signs investors should be aware of before investing in HOCHTIEF. Read for free now.
Understanding Return On Capital Employed (ROCE)
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on HOCHTIEF is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.058 = €563m ÷ (€25b - €15b) (Based on the trailing twelve months to December 2024).
Thus, HOCHTIEF has an ROCE of 5.8%. Ultimately, that's a low return and it under-performs the Construction industry average of 11%.
See our latest analysis for HOCHTIEF
In the above chart we have measured HOCHTIEF's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for HOCHTIEF .
So How Is HOCHTIEF's ROCE Trending?
On the surface, the trend of ROCE at HOCHTIEF doesn't inspire confidence. To be more specific, ROCE has fallen from 15% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
Another thing to note, HOCHTIEF has a high ratio of current liabilities to total assets of 60%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
What We Can Learn From HOCHTIEF's ROCE
While returns have fallen for HOCHTIEF in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 204% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.