Yahoo Finance Schindler Holding (VTX:SCHN) Hasn't Managed To Accelerate Its Returns
There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Looking at Schindler Holding (VTX:SCHN), it does have a high ROCE right now, but lets see how returns are trending.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Schindler Holding is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.22 = CHF1.2b ÷ (CHF12b - CHF6.4b) (Based on the trailing twelve months to March 2024).
Thus, Schindler Holding has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Machinery industry average of 15%.
See our latest analysis for Schindler Holding
In the above chart we have measured Schindler Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Schindler Holding for free.
What Does the ROCE Trend For Schindler Holding Tell Us?
There hasn't been much to report for Schindler Holding's returns and its level of capital employed because both metrics have been steady for the past 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. Although current returns are high, we'd need more evidence of underlying growth for it to look like a multi-bagger going forward. That probably explains why Schindler Holding has been paying out 65% of its earnings as dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.
On a side note, Schindler Holding's current liabilities are still rather high at 54% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
Our Take On Schindler Holding's ROCE
In summary, Schindler Holding isn't compounding its earnings but is generating decent returns on the same amount of capital employed. And investors may be recognizing these trends since the stock has only returned a total of 24% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
While Schindler Holding doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for SCHN on our platform.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.
