There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 when we looked at Aspo Oyj (HEL:ASPO) and its trend of ROCE, we really liked what we saw.
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. The formula for this calculation on Aspo Oyj is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.15 = €42m ÷ (€406m - €122m) (Based on the trailing twelve months to December 2021).
Therefore, Aspo Oyj has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Industrials industry average of 6.5% it's much better.
View our latest analysis for Aspo Oyj
In the above chart we have measured Aspo Oyj's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
We like the trends that we're seeing from Aspo Oyj. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 21%. So we're very much inspired by what we're seeing at Aspo Oyj thanks to its ability to profitably reinvest capital.
The Bottom Line
To sum it up, Aspo Oyj has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 28% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
Aspo Oyj does have some risks though, and we've spotted 3 warning signs for Aspo Oyj that you might be interested in.
While Aspo Oyj may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
About HLSE:ASPO
Aspo Oyj
Provides shipping services in Finland, Scandinavia, the Baltic countries, Russia, Ukraine, other CIS countries, and internationally.
Reasonable growth potential with mediocre balance sheet.
