Does Harvia Oyj (HEL:HARVIA) Have The Makings Of A Multi-Bagger?

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'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, we've noticed some promising trends at Harvia Oyj (HEL:HARVIA) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Harvia Oyj is:

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

0.17 = €24m ÷ (€166m - €22m) (Based on the trailing twelve months to December 2020).

So, Harvia Oyj has an ROCE of 17%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Leisure industry average of 16%.

View our latest analysis for Harvia Oyj

In the above chart we have measured Harvia 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 Harvia Oyj.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Harvia Oyj. Over the last five years, returns on capital employed have risen substantially to 17%. The amount of capital employed has increased too, by 58%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Harvia Oyj's ROCE

In summary, it's great to see that Harvia Oyj can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last year, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Harvia Oyj can keep these trends up, it could have a bright future ahead.

Like most companies, Harvia Oyj does come with some risks, and we've found 2 warning signs that you should be aware of.

While Harvia 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. 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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