Kalkine: ASX200 Spotlight: Why Harvey Norman Holdings (ASX:HVN) May Be Losing Its Growth Spark

June 11, 2025 02:28 PM AEST | By Team Kalkine Media

Kalkine: ASX200 Spotlight: Why Harvey Norman Holdings (ASX:HVN) May Be Losing Its Growth Spark — Image source: Shutterstock

Understanding Capital Efficiency

A useful metric for gauging how well a company is utilising its capital is the Return on Capital Employed (ROCE). It essentially highlights how much pre-tax profit a company generates from each dollar of capital employed. For Harvey Norman Holdings, the ROCE stands at 9.9% based on its most recent financial data. While this aligns with the industry average, it doesn’t exactly shine in terms of superior performance.

The formula used for this calculation is:

ROCE = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

In Harvey Norman’s case, this translates to AU$677 million in EBIT divided by AU$6.9 billion of capital employed (AU$8.3 billion in total assets minus AU$1.4 billion in current liabilities), resulting in that 9.9% ROCE.

Investment Without Accelerated Returns

Over the last five years, Harvey Norman Holdings has grown its capital base by around 34%. Yet, despite this increase in investment, the ROCE has remained stagnant. This suggests that the additional capital hasn’t been directed into high-return opportunities, which can limit the potential for exponential business growth. In short, while the company has been investing more, the returns on these investments haven't picked up pace.

This pattern often indicates operational maturity where expansion doesn’t necessarily translate to enhanced profitability. For potential investors or market watchers seeking strong performers among ASX dividend stocks, Harvey Norman's position may now warrant a closer look at the quality and sustainability of its capital allocation strategies.

The Market's Perspective

Despite the lukewarm capital returns, Harvey Norman Holdings has delivered an impressive 112% return to shareholders over the past five years. This underlines market confidence or optimism in its broader fundamentals, possibly driven by consistent dividend payouts or brand strength.

However, without a meaningful improvement in ROCE, sustaining long-term momentum might prove challenging. The company remains a stable component of the ASX200, but its current financial trend may limit its appeal as a breakout performer going forward.

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