U.S. markets close in 4 hours 40 minutes
  • S&P 500

    +30.07 (+0.82%)
  • Dow 30

    +184.57 (+0.63%)
  • Nasdaq

    +134.23 (+1.24%)
  • Russell 2000

    +30.78 (+1.86%)
  • Crude Oil

    +2.28 (+2.97%)
  • Gold

    +10.30 (+0.63%)
  • Silver

    +0.20 (+1.08%)

    +0.0012 (+0.13%)
  • 10-Yr Bond

    +0.0590 (+1.52%)

    +0.0097 (+0.91%)

    +0.0530 (+0.04%)

    +1,083.52 (+5.67%)
  • CMC Crypto 200

    +2.48 (+0.54%)
  • FTSE 100

    +11.59 (+0.17%)
  • Nikkei 225

    +140.32 (+0.53%)

Shareholders Would Enjoy A Repeat Of Richelieu Hardware's (TSE:RCH) Recent Growth In Returns

·3 min read

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Richelieu Hardware's (TSE:RCH) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Richelieu Hardware, this is the formula:

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

0.27 = CA$224m ÷ (CA$1.1b - CA$263m) (Based on the trailing twelve months to May 2022).

So, Richelieu Hardware has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 19% earned by companies in a similar industry.

View our latest analysis for Richelieu Hardware


Above you can see how the current ROCE for Richelieu Hardware 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 The Trend Of ROCE Can Tell Us

We like the trends that we're seeing from Richelieu Hardware. Over the last five years, returns on capital employed have risen substantially to 27%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 97%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Richelieu Hardware's ROCE

In summary, it's great to see that Richelieu Hardware can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Considering the stock has delivered 16% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a separate note, we've found 1 warning sign for Richelieu Hardware you'll probably want to know about.

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.

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

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here