Samuel Heath & Sons (LON:HSM) Will Be Hoping To Turn Its Returns On Capital Around
If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. In light of that, from a first glance at Samuel Heath & Sons (LON:HSM), we've spotted some signs that it could be struggling, so let's investigate.
Our free stock report includes 2 warning signs investors should be aware of before investing in Samuel Heath & Sons. Read for free now.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Samuel Heath & Sons, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.063 = UK£843k ÷ (UK£15m - UK£1.6m) (Based on the trailing twelve months to September 2024).
Therefore, Samuel Heath & Sons has an ROCE of 6.3%. Ultimately, that's a low return and it under-performs the Building industry average of 13%.
Check out our latest analysis for Samuel Heath & Sons
AIM:HSM Return on Capital Employed May 8th 2025
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Samuel Heath & Sons has performed in the past in other metrics, you can view this free graph of Samuel Heath & Sons' past earnings, revenue and cash flow.
How Are Returns Trending?
We are a bit worried about the trend of returns on capital at Samuel Heath & Sons. Unfortunately the returns on capital have diminished from the 10% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Samuel Heath & Sons becoming one if things continue as they have.
Our Take On Samuel Heath & Sons' ROCE
In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Yet despite these concerning fundamentals, the stock has performed strongly with a 43% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Bloomberg
27 minutes ago
- Bloomberg
Netherlands Defence Minister: NATO-wide 5% defence spend would be "historic"
Ruben Brekelmans, Netherlands Minister of Defence said they and their European partners support President Donald Trump's calls to encourage Iran to the negotiation table in order to "come to a sustainable solution". Speaking about the upcoming NATO meeting, he told Bloomberg's Oliver Crook "if we agree to 5% spending on core defence and defence-related matters, that would be a historic step" and said it would be of particular significance "if 32 allies in unity agree on this". (Source: Bloomberg)
Bloomberg
27 minutes ago
- Bloomberg
BBVA Chairman Urges ‘Clarity' on Sabadell's TSB Disposal Plan
BBVA SA Chairman Carlos Torres said he wants more clarity regarding the process for a potential sale of Banco Sabadell SA 's UK unit. 'Sabadell has spoken about unsolicited offers, and then there are reports about an ongoing process' he said at a conference Monday. 'It would be good for the information to be clarified.'
Associated Press
29 minutes ago
- Associated Press
EU finds 'indications' Israel is breaching their trade deal with its actions in Gaza
BRUSSELS (AP) — The European Union says there are ″indications″ that Israel's actions in Gaza are violating human rights obligations in its trade agreement with the EU, according to its findings seen by The Associated Press. EU foreign policy chief Kaja Kallas presented the review to foreign minsters of the 27-member bloc in Brussels on Monday, leading at least one country to openly propose suspending the trade deal. 'There are indications that Israel would be in breach of its human rights obligations under Article 2 of the EU-Israel Associated Agreement,' according to the review by the EU's diplomatic corps, the European External Action Service. A third of Israel's imports come from the EU, valued at $27 billion annually, while Europe imports less than 1% of its goods from Israel, according to the EU Directorate-General for Trade and Economic Security. Suspending trade ties would require a unanimous decision, which is likely impossible to obtain from countries like Austria, Germany and Hungary that tend to back Israel. Other actions — such as ending visa-free travel to Europe for Israelis, sanctioning Israeli settlers in the West Bank or halting academic partnerships — could be pushed if a 'qualified majority' — 15 of the 27 nations representing at least 65% of the population of the EU — agree. Countries like the Netherlands, Ireland and Spain have been vocal in their support for the Palestinians in Gaza as Israel battles Hamas. 'When all the focus is on Iran and the escalation regarding Iran, we should not forget about Gaza,' said Dutch foreign minister Caspar Veldkamp, who led the charge for the review. Israel launched its military campaign in Gaza after Hamas' Oct. 7, 2023, attack on southern Israel, in which militants killed around 1,200 people, mostly civilians, and took another 251 hostages. About 56,000 Palestinians have since been killed, according to Gaza's Health Ministry, and little relatively aid has entered since Israel ended the latest ceasefire in March. Outrage over Israel's actions in Gaza has grown in Europe as images of suffering Palestinians have driven protests in London, Berlin, Brussels, Madrid and Amsterdam. Spain has canceled arms deals with Israel and called for an arms embargo. Spanish Foreign Minister José Manuel Albares Bueno on Monday called for suspending the EU-Israel trade agreement. 'The time for words and declarations is behind. We had enough time,' he told the meeting. 'And at the same time, Palestinians in Gaza have no more time to lose. Every day, babies, women, men are being killed. This is the time for action.' Manuel Albares also called for an embargo on EU countries selling weapons to Israel and for the widening of individual sanctions on anyone undermining the proposed two-state solution. 'Europe must show courage,' he told journalists. ___ Associated Press writers Lorne Cooke in The Hague and Ella Joyner in Brussels contributed to this report.
