If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at H&R GmbH KGaA (ETR:2HRA) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for H&R GmbH KGaA, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.046 = €30m ÷ (€988m - €336m) (Based on the trailing twelve months to June 2024).

Thus, H&R GmbH KGaA has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 8.4%.

View our latest analysis for H&R GmbH KGaA

In the above chart we have measured H&R GmbH KGaA's 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 H&R GmbH KGaA .

So How Is H&R GmbH KGaA's ROCE Trending?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. 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 62% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On H&R GmbH KGaA's ROCE

In summary, we're delighted to see that H&R GmbH KGaA has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Astute investors may have an opportunity here because the stock has declined 38% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

On a separate note, we've found 2 warning signs for H&R GmbH KGaA you'll probably want to know about.

While H&R GmbH KGaA 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.