Metsä Board Oyj (HEL:METSB) Has More To Do To Multiply In Value Going Forward

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Metsä Board Oyj (HEL:METSB), we don't think it's current trends fit the mold of a multi-bagger.

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 Metsä Board Oyj, this is the formula:

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

0.065 = €173m ÷ (€3.1b - €443m) (Based on the trailing twelve months to June 2023).

So, Metsä Board Oyj has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Packaging industry average of 12%.

Check out our latest analysis for Metsä Board Oyj

Above you can see how the current ROCE for Metsä Board Oyj compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Metsä Board Oyj.

So How Is Metsä Board Oyj's ROCE Trending?

There are better returns on capital out there than what we're seeing at Metsä Board Oyj. Over the past five years, ROCE has remained relatively flat at around 6.5% and the business has deployed 59% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Metsä Board Oyj's ROCE

In summary, Metsä Board Oyj has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 11% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Metsä Board Oyj does have some risks though, and we've spotted 1 warning sign for Metsä Board Oyj that you might be interested in.

While Metsä Board 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.