Tokmanni Group Oyj (HEL:TOKMAN) Might Have The Makings Of A Multi-Bagger

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Tokmanni Group Oyj (HEL:TOKMAN) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Tokmanni Group Oyj is:

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

0.17 = €100m ÷ (€817m - €227m) (Based on the trailing twelve months to March 2022).

Therefore, Tokmanni Group Oyj has an ROCE of 17%. That's a relatively normal return on capital, and it's around the 20% generated by the Multiline Retail industry.

View our latest analysis for Tokmanni Group Oyj

In the above chart we have measured Tokmanni Group Oyj's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Tokmanni Group Oyj.

How Are Returns Trending?

Investors would be pleased with what's happening at Tokmanni Group Oyj. The data shows that returns on capital have increased substantially over the last five years to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 68% more capital is being employed now too. So we're very much inspired by what we're seeing at Tokmanni Group Oyj thanks to its ability to profitably reinvest capital.

The Bottom Line On Tokmanni Group Oyj's ROCE

To sum it up, Tokmanni Group Oyj has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 101% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Tokmanni Group Oyj, you might be interested to know about the 3 warning signs that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.