What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Hilton Worldwide Holdings (NYSE:HLT) we really liked what we saw.

Understanding 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 Hilton Worldwide Holdings:

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

0.20 = US$2.3b ÷ (US$15b - US$3.6b) (Based on the trailing twelve months to September 2023).

So, Hilton Worldwide Holdings has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Hospitality industry average of 9.1%.

See our latest analysis for Hilton Worldwide Holdings

In the above chart we have measured Hilton Worldwide Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Hilton Worldwide Holdings here for free.

How Are Returns Trending?

Hilton Worldwide Holdings' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 82% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From Hilton Worldwide Holdings' ROCE

As discussed above, Hilton Worldwide Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 140% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Hilton Worldwide Holdings can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Hilton Worldwide Holdings, we've discovered 3 warning signs that you should be aware of.

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.

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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.