Yahoo Finance Hartshead Resources' (ASX:HHR) Returns On Capital Are Heading Higher
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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Hartshead Resources (ASX:HHR) looks quite promising in regards to its trends of return on capital.
What Is 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 Hartshead Resources is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.081 = AU$2.7m ÷ (AU$41m - AU$7.0m) (Based on the trailing twelve months to December 2023).
Therefore, Hartshead Resources has an ROCE of 8.1%. On its own, that's a low figure but it's around the 9.9% average generated by the Oil and Gas industry.
View our latest analysis for Hartshead Resources
In the above chart we have measured Hartshead Resources' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Hartshead Resources .
What Can We Tell From Hartshead Resources' ROCE Trend?
The fact that Hartshead Resources is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses three years ago, but now it's earning 8.1% which is a sight for sore eyes. In addition to that, Hartshead Resources is employing 866% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
Our Take On Hartshead Resources' ROCE
In summary, it's great to see that Hartshead Resources has managed to break into profitability and is continuing to reinvest in its business. However the stock is down a substantial 72% in the last three years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.
If you'd like to know more about Hartshead Resources, we've spotted 4 warning signs, and 1 of them is concerning.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
