The Return Trends At Wetteri Oyj (HEL:WETTERI) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Wetteri Oyj (HEL:WETTERI) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Wetteri Oyj:

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

0.051 = €4.7m ÷ (€231m - €140m) (Based on the trailing twelve months to June 2024).

Therefore, Wetteri Oyj has an ROCE of 5.1%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 9.7%.

Check out our latest analysis for Wetteri Oyj

Historical performance is a great place to start when researching a stock so above you can see the gauge for Wetteri Oyj's ROCE against it's prior returns. If you'd like to look at how Wetteri Oyj has performed in the past in other metrics, you can view this free graph of Wetteri Oyj's past earnings, revenue and cash flow.

How Are Returns Trending?

Wetteri Oyj's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last one year, the ROCE has climbed 260% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Another thing to note, Wetteri Oyj has a high ratio of current liabilities to total assets of 61%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Wetteri Oyj's ROCE

To sum it up, Wetteri Oyj is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 25% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 4 warning signs facing Wetteri Oyj that you might find interesting.

While Wetteri 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.