Saga Furs Oyj (HEL:SAGCV) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Saga Furs Oyj (HEL:SAGCV) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Saga Furs Oyj:

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

0.04 = €3.7m ÷ (€134m - €41m) (Based on the trailing twelve months to April 2021).

Thus, Saga Furs Oyj has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 10%.

Check out our latest analysis for Saga Furs Oyj

Historical performance is a great place to start when researching a stock so above you can see the gauge for Saga Furs Oyj's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Saga Furs Oyj, check out these free graphs here.

The Trend Of ROCE

Saga Furs Oyj has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 4.0% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

On a related note, the company's ratio of current liabilities to total assets has decreased to 31%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Saga Furs Oyj has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

In summary, we're delighted to see that Saga Furs Oyj has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 19% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 2 warning signs facing Saga Furs Oyj that you might find interesting.

While Saga Furs 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.
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