Yahoo Finance What Do The Returns On Capital At Hill International (NYSE:HIL) Tell Us?
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Hill International (NYSE:HIL), we don't think it's current trends fit the mold of a multi-bagger.
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 Hill International, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.092 = US$17m ÷ (US$275m - US$92m) (Based on the trailing twelve months to June 2020).
Therefore, Hill International has an ROCE of 9.2%. In absolute terms, that's a low return but it's around the Professional Services industry average of 10%.
View our latest analysis for Hill International
Historical performance is a great place to start when researching a stock so above you can see the gauge for Hill International's ROCE against it's prior returns. If you're interested in investigating Hill International's past further, check out this free graph of past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 41% in that same period. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.
The Bottom Line On Hill International's ROCE
In summary, Hill International isn't reinvesting funds back into the business and returns aren't growing. And in the last five years, the stock has given away 63% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
On a final note, we found 4 warning signs for Hill International (1 can't be ignored) you should be aware of.
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.
This article by Simply Wall St is general in nature. 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.
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