Returns At Keskisuomalainen Oyj (HEL:KSLAV) Appear To Be Weighed Down

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Keskisuomalainen Oyj (HEL:KSLAV) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

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

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

0.082 = €13m ÷ (€214m - €59m) (Based on the trailing twelve months to December 2021).

Thus, Keskisuomalainen Oyj has an ROCE of 8.2%. Even though it's in line with the industry average of 8.2%, it's still a low return by itself.

See our latest analysis for Keskisuomalainen Oyj

Historical performance is a great place to start when researching a stock so above you can see the gauge for Keskisuomalainen Oyj's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Keskisuomalainen Oyj, check out these free graphs here.

What Does the ROCE Trend For Keskisuomalainen Oyj Tell Us?

Over the past five years, Keskisuomalainen Oyj's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Keskisuomalainen Oyj to be a multi-bagger going forward.

Our Take On Keskisuomalainen Oyj's ROCE

In summary, Keskisuomalainen Oyj isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has gained an impressive 88% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, Keskisuomalainen Oyj does come with some risks, and we've found 4 warning signs that you should be aware of.

While Keskisuomalainen 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.