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Investors Will Want Heidrick & Struggles International's (NASDAQ:HSII) Growth In ROCE To Persist

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Simply Wall St
·3 min read
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  • HSII

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Heidrick & Struggles International (NASDAQ:HSII) so let's look a bit deeper.

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. To calculate this metric for Heidrick & Struggles International, this is the formula:

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

0.12 = US$55m ÷ (US$681m - US$217m) (Based on the trailing twelve months to March 2021).

So, Heidrick & Struggles International has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Professional Services industry average of 10%.

See our latest analysis for Heidrick & Struggles International

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roce

In the above chart we have measured Heidrick & Struggles International'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 Heidrick & Struggles International here for free.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Heidrick & Struggles International are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 12%. The amount of capital employed has increased too, by 37%. So we're very much inspired by what we're seeing at Heidrick & Struggles International thanks to its ability to profitably reinvest capital.

The Bottom Line On Heidrick & Struggles International's ROCE

To sum it up, Heidrick & Struggles International has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 151% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Heidrick & Struggles International, we've discovered 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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