Yahoo Finance Returns At EMS-CHEMIE HOLDING (VTX:EMSN) Appear To Be Weighed Down
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, while the ROCE is currently high for EMS-CHEMIE HOLDING (VTX:EMSN), we aren't jumping out of our chairs because returns are decreasing.
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 EMS-CHEMIE HOLDING is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.29 = CHF643m ÷ (CHF2.6b - CHF405m) (Based on the trailing twelve months to June 2022).
So, EMS-CHEMIE HOLDING has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 12%.
Check out our latest analysis for EMS-CHEMIE HOLDING
Above you can see how the current ROCE for EMS-CHEMIE HOLDING compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
The Trend Of ROCE
Things have been pretty stable at EMS-CHEMIE HOLDING, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So while the current operations are delivering respectable returns, unless capital employed increases we'd be hard-pressed to believe it's a multi-bagger going forward. That probably explains why EMS-CHEMIE HOLDING has been paying out 99% of its earnings as dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.
In Conclusion...
In summary, EMS-CHEMIE HOLDING isn't compounding its earnings but is generating decent returns on the same amount of capital employed. And with the stock having returned a mere 18% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
One more thing to note, we've identified 1 warning sign with EMS-CHEMIE HOLDING and understanding it should be part of your investment process.
If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.
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