If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 on that note, Aalborg Boldspilklub (CPH:AAB) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What is it?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Aalborg Boldspilklub, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = kr.12m ÷ (kr.162m - kr.54m) (Based on the trailing twelve months to December 2020).
Thus, Aalborg Boldspilklub has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 5.8% generated by the Hospitality industry.
View our latest analysis for Aalborg Boldspilklub
Historical performance is a great place to start when researching a stock so above you can see the gauge for Aalborg Boldspilklub's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Aalborg Boldspilklub, check out these free graphs here.
The Trend Of ROCE
Aalborg Boldspilklub has not disappointed with their ROCE growth. 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 1,371% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 33% of the business, which is more than it was five years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.
The Bottom Line
In summary, we're delighted to see that Aalborg Boldspilklub has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has dived 76% over the last five years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.
Aalborg Boldspilklub does have some risks though, and we've spotted 3 warning signs for Aalborg Boldspilklub that you might be interested in.
While Aalborg Boldspilklub isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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This article by Simply Wall St is general in nature. 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.
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About CPSE:AAB
Adequate balance sheet slight.
