Metsä Board Oyj's (HEL:METSB) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. With that in mind, we've noticed some promising trends at Metsä Board Oyj (HEL:METSB) 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. The formula for this calculation on Metsä Board Oyj is:

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

0.12 = €253m ÷ (€2.6b - €482m) (Based on the trailing twelve months to March 2021).

Thus, Metsä Board Oyj has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Forestry industry average of 6.4% it's much better.

Check out our latest analysis for Metsä Board Oyj

In the above chart we have measured Metsä Board 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 Does the ROCE Trend For Metsä Board Oyj Tell Us?

We like the trends that we're seeing from Metsä Board Oyj. The data shows that returns on capital have increased substantially over the last five years to 12%. The amount of capital employed has increased too, by 28%. So we're very much inspired by what we're seeing at Metsä Board Oyj thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Metsä Board Oyj is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

One final note, you should learn about the 2 warning signs we've spotted with Metsä Board Oyj (including 1 which can't be ignored) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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