Yahoo Finance Returns On Capital At Hurco Companies (NASDAQ:HURC) Paint A Concerning Picture
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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Hurco Companies (NASDAQ:HURC), it didn't seem to tick all of these boxes.
Understanding Return On Capital Employed (ROCE)
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. Analysts use this formula to calculate it for Hurco Companies:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.061 = US$15m ÷ (US$334m - US$82m) (Based on the trailing twelve months to January 2022).
Thus, Hurco Companies has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 10%.
See our latest analysis for Hurco Companies
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Hurco Companies, check out these free graphs here.
What Does the ROCE Trend For Hurco Companies Tell Us?
On the surface, the trend of ROCE at Hurco Companies doesn't inspire confidence. Over the last five years, returns on capital have decreased to 6.1% from 7.8% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
What We Can Learn From Hurco Companies' ROCE
While returns have fallen for Hurco Companies in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 3.0% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.
One final note, you should learn about the 2 warning signs we've spotted with Hurco Companies (including 1 which is a bit unpleasant) .
While Hurco Companies may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
