If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Gyldendal (CPH:GYLD B), we don't think it's current trends fit the mold of a multi-bagger.
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 Gyldendal is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.075 = kr.31m ÷ (kr.643m - kr.234m) (Based on the trailing twelve months to December 2024).
Thus, Gyldendal has an ROCE of 7.5%. In absolute terms, that's a low return and it also under-performs the Media industry average of 11%.
Check out our latest analysis for Gyldendal
Historical performance is a great place to start when researching a stock so above you can see the gauge for Gyldendal's ROCE against it's prior returns. If you'd like to look at how Gyldendal has performed in the past in other metrics, you can view this free graph of Gyldendal's past earnings, revenue and cash flow .
What The Trend Of ROCE Can Tell Us
Over the past five years, Gyldendal's ROCE and capital employed have both remained mostly flat. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Gyldendal doesn't end up being a multi-bagger in a few years time.
What We Can Learn From Gyldendal's ROCE
We can conclude that in regards to Gyldendal's returns on capital employed and the trends, there isn't much change to report on. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
Gyldendal does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.