The Returns At Lassila & Tikanoja Oyj (HEL:LAT1V) Provide Us With Signs Of What's To Come

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after investigating Lassila & Tikanoja Oyj (HEL:LAT1V), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Lassila & Tikanoja Oyj:

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

0.074 = €28m ÷ (€597m - €212m) (Based on the trailing twelve months to December 2020).

So, Lassila & Tikanoja Oyj has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 9.6%.

See our latest analysis for Lassila & Tikanoja Oyj

In the above chart we have measured Lassila & Tikanoja Oyj's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Lassila & Tikanoja Oyj.

What Does the ROCE Trend For Lassila & Tikanoja Oyj Tell Us?

When we looked at the ROCE trend at Lassila & Tikanoja Oyj, we didn't gain much confidence. To be more specific, ROCE has fallen from 16% over the last five years. However it looks like Lassila & Tikanoja Oyj might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

In summary, Lassila & Tikanoja Oyj is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 20% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a separate note, we've found 3 warning signs for Lassila & Tikanoja Oyj you'll probably want to know about.

While Lassila & Tikanoja Oyj 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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