Fiskars Oyj Abp (HEL:FSKRS) 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? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Fiskars Oyj Abp (HEL:FSKRS) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Fiskars Oyj Abp, this is the formula:

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

0.095 = €103m ÷ (€1.5b - €403m) (Based on the trailing twelve months to June 2023).

Thus, Fiskars Oyj Abp has an ROCE of 9.5%. In absolute terms, that's a low return but it's around the Consumer Durables industry average of 8.8%.

View our latest analysis for Fiskars Oyj Abp

In the above chart we have measured Fiskars Oyj Abp'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 Can We Tell From Fiskars Oyj Abp's ROCE Trend?

Fiskars Oyj Abp has not disappointed in regards to ROCE growth. The data shows that returns on capital have increased by 65% over the trailing five years. The company is now earning €0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 27% less than it was five years ago, which can be indicative of a business that's improving its efficiency. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

In Conclusion...

In a nutshell, we're pleased to see that Fiskars Oyj Abp has been able to generate higher returns from less capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 55% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing Fiskars Oyj Abp we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

While Fiskars Oyj Abp 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.