Returns Are Gaining Momentum At Swiss Steel Holding (VTX:STLN)

By
Simply Wall St
Published
January 20, 2022
SWX:STLN
Source: Shutterstock

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Swiss Steel Holding (VTX:STLN) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Swiss Steel Holding:

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

0.047 = €62m ÷ (€2.2b - €878m) (Based on the trailing twelve months to September 2021).

So, Swiss Steel Holding has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 13%.

View our latest analysis for Swiss Steel Holding

roce
SWX:STLN Return on Capital Employed January 20th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for Swiss Steel Holding's ROCE against it's prior returns. If you're interested in investigating Swiss Steel Holding's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 3,127% over the last five years. 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.

On a separate but related note, it's important to know that Swiss Steel Holding has a current liabilities to total assets ratio of 40%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Swiss Steel Holding's ROCE

To bring it all together, Swiss Steel Holding has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 51% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching Swiss Steel Holding, you might be interested to know about the 3 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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