Hawkins (NASDAQ:HWKN) Shareholders Will Want The ROCE Trajectory To Continue

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. Firstly, we’ll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Hawkins (NASDAQ:HWKN) looks quite promising in regards to its trends of return on capital.

Understanding 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. Analysts use this formula to calculate it for Hawkins:

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

0.15 = US$77m ÷ (US$596m – US$88m) (Based on the trailing twelve months to July 2022).

So, Hawkins has an ROCE of 15%. In absolute terms, that’s a satisfactory return, but compared to the Chemicals industry average of 12% it’s much better.

View our latest analysis for Hawkins

roce

In the above chart we have measured Hawkins’ 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 report on analyst forecasts for the company.

What Can We Tell From Hawkins’ ROCE Trend?

Hawkins is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 15%. The amount of capital employed has increased too, by 31%. 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

All in all, it’s terrific to see that Hawkins is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 177% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it’s worth looking further into this stock because if Hawkins can keep these trends up, it could have a bright future ahead.

Story continues

Hawkins does have some risks though, and we’ve spotted 1 warning sign for Hawkins that you might be interested in.

While Hawkins isn’t earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

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