To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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, the ROCE of Marimekko Oyj (HEL:MEKKO) looks great, so lets see what the trend can tell us.
What is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Marimekko Oyj:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.34 = €31m ÷ (€133m - €41m) (Based on the trailing twelve months to December 2021).
Therefore, Marimekko Oyj has an ROCE of 34%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.
View our latest analysis for Marimekko Oyj
In the above chart we have measured Marimekko 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
The trends we've noticed at Marimekko Oyj are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 34%. The amount of capital employed has increased too, by 169%. So we're very much inspired by what we're seeing at Marimekko Oyj thanks to its ability to profitably reinvest capital.
Our Take On Marimekko Oyj's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Marimekko Oyj has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you want to continue researching Marimekko Oyj, you might be interested to know about the 1 warning sign that our analysis has discovered.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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:MEKKO
Marimekko Oyj
A lifestyle design company, designs, manufactures, and sells clothing, bags and accessories, and interior decoration products worldwide.
Flawless balance sheet with solid track record and pays a dividend.
