Yahoo Finance Returns At Hertz Global Holdings (NASDAQ:HTZ) Are On The Way Up
To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Speaking of which, we noticed some great changes in Hertz Global Holdings' (NASDAQ:HTZ) returns on capital, so let's have 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. Analysts use this formula to calculate it for Hertz Global Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = US$2.5b ÷ (US$21b - US$2.1b) (Based on the trailing twelve months to March 2022).
Thus, Hertz Global Holdings has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 14% generated by the Transportation industry.
View our latest analysis for Hertz Global Holdings
Above you can see how the current ROCE for Hertz Global Holdings 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 Hertz Global Holdings' ROCE Trend?
Hertz Global Holdings' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 640% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
In Conclusion...
In summary, we're delighted to see that Hertz Global Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 41% over the last year, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
One final note, you should learn about the 3 warning signs we've spotted with Hertz Global Holdings (including 2 which can't be ignored) .
While Hertz Global Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
