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What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Hilton Worldwide Holdings (NYSE:HLT) we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Hilton Worldwide Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = US$2.4b ÷ (US$17b - US$4.7b) (Based on the trailing twelve months to December 2024).
Therefore, Hilton Worldwide Holdings has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 9.8%.
Check out our latest analysis for Hilton Worldwide Holdings
Above you can see how the current ROCE for Hilton Worldwide Holdings 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 Hilton Worldwide Holdings .
So How Is Hilton Worldwide Holdings' ROCE Trending?
Hilton Worldwide Holdings' ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 52% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line
To sum it up, Hilton Worldwide Holdings is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 249% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.