Returns At Karelia Tobacco (ATH:KARE) Appear To Be Weighed Down

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Karelia Tobacco's (ATH:KARE) ROCE trend, we were pretty happy with 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 Karelia Tobacco is:

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

0.14 = €104m ÷ (€904m - €158m) (Based on the trailing twelve months to June 2024).

Thus, Karelia Tobacco has an ROCE of 14%. In isolation, that's a pretty standard return but against the Tobacco industry average of 17%, it's not as good.

See our latest analysis for Karelia Tobacco

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Karelia Tobacco has performed in the past in other metrics, you can view this free graph of Karelia Tobacco's past earnings, revenue and cash flow.

So How Is Karelia Tobacco's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 55% in that time. 14% is a pretty standard return, and it provides some comfort knowing that Karelia Tobacco has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

To sum it up, Karelia Tobacco has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 53% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you're still interested in Karelia Tobacco it's worth checking out our FREE intrinsic value approximation for KARE to see if it's trading at an attractive price in other respects.

While Karelia Tobacco isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.