The 24% Return On Capital At Rovio Entertainment Oyj (HEL:ROVIO) Got Our Attention

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. 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 Rovio Entertainment Oyj (HEL:ROVIO) looks great, so lets see what the trend can tell us.

What is 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. The formula for this calculation on Rovio Entertainment Oyj is:

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

0.24 = €40m ÷ (€207m - €37m) (Based on the trailing twelve months to September 2020).

Therefore, Rovio Entertainment Oyj has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

View our latest analysis for Rovio Entertainment Oyj

Above you can see how the current ROCE for Rovio Entertainment Oyj compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

The trends we've noticed at Rovio Entertainment Oyj are quite reassuring. The data shows that returns on capital have increased substantially over the last four years to 24%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 89%. So we're very much inspired by what we're seeing at Rovio Entertainment Oyj thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 18%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

The Bottom Line On Rovio Entertainment Oyj's ROCE

All in all, it's terrific to see that Rovio Entertainment Oyj is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 31% in the last three years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

While Rovio Entertainment Oyj looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ROVIO is currently trading for a fair price.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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