The Returns At Rockwool (CPH:ROCK B) Aren't Growing

Published
June 14, 2022
CPSE:ROCK B
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Rockwool's (CPH:ROCK B) trend of ROCE, we liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Rockwool, this is the formula:

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

0.16 = €413m ÷ (€3.3b - €701m) (Based on the trailing twelve months to March 2022).

So, Rockwool has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 14% generated by the Building industry.

Check out our latest analysis for Rockwool

roce
CPSE:ROCK B Return on Capital Employed June 14th 2022

Above you can see how the current ROCE for Rockwool compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Rockwool here for free.

So How Is Rockwool's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 54% more capital in the last five years, and the returns on that capital have remained stable at 16%. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On Rockwool's ROCE

In the end, Rockwool has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 37% over the last five years for shareholders who have owned the stock in this period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

On a final note, we've found 2 warning signs for Rockwool that we think you should be aware of.

While Rockwool isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're helping make it simple.

Find out whether Rockwool is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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