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These Metrics Don't Make Hain Celestial Group (NASDAQ:HAIN) Look Too Strong

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Simply Wall St
·3 min read
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What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. Having said that, after a brief look, Hain Celestial Group (NASDAQ:HAIN) we aren't filled with optimism, but let's investigate further.

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 Hain Celestial Group, this is the formula:

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

0.071 = US$134m ÷ (US$2.2b - US$300m) (Based on the trailing twelve months to June 2020).

So, Hain Celestial Group has an ROCE of 7.1%. In absolute terms, that's a low return but it's around the Food industry average of 8.6%.

See our latest analysis for Hain Celestial Group


Above you can see how the current ROCE for Hain Celestial Group 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.

What Can We Tell From Hain Celestial Group's ROCE Trend?

The trend of returns that Hain Celestial Group is generating are raising some concerns. To be more specific, today's ROCE was 9.2% five years ago but has since fallen to 7.1%. What's equally concerning is that the amount of capital deployed in the business has shrunk by 30% over that same period. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. If these underlying trends continue, we wouldn't be too optimistic going forward.

The Key Takeaway

To see Hain Celestial Group reducing the capital employed in the business in tandem with diminishing returns, is concerning. Long term shareholders who've owned the stock over the last five years have experienced a 32% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to continue researching Hain Celestial Group, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Hain Celestial Group 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.

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.

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