Aktieselskabet Schouw (CPH:SCHO) Will Want To Turn Around Its Return Trends

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. In light of that, when we looked at Aktieselskabet Schouw (CPH:SCHO) and its ROCE trend, we weren't exactly thrilled.

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. The formula for this calculation on Aktieselskabet Schouw is:

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

0.079 = kr.1.2b ÷ (kr.22b - kr.7.1b) (Based on the trailing twelve months to March 2022).

Therefore, Aktieselskabet Schouw has an ROCE of 7.9%. Even though it's in line with the industry average of 8.3%, it's still a low return by itself.

Check out our latest analysis for Aktieselskabet Schouw

Above you can see how the current ROCE for Aktieselskabet Schouw 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 Aktieselskabet Schouw here for free.

So How Is Aktieselskabet Schouw's ROCE Trending?

In terms of Aktieselskabet Schouw's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.9% from 12% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

In summary, despite lower returns in the short term, we're encouraged to see that Aktieselskabet Schouw is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 21% in the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

On a final note, we've found 1 warning sign for Aktieselskabet Schouw that we think you should be aware of.

While Aktieselskabet Schouw 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. 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.