Returns Are Gaining Momentum At Sláturfélags Suðurlands svf (ICE:SFS B)

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. Speaking of which, we noticed some great changes in Sláturfélags Suðurlands svf's (ICE:SFS B) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for Sláturfélags Suðurlands svf, this is the formula:

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

0.093 = Kr978m ÷ (Kr13b - Kr2.9b) (Based on the trailing twelve months to December 2022).

Therefore, Sláturfélags Suðurlands svf has an ROCE of 9.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.4%.

Check out our latest analysis for Sláturfélags Suðurlands svf

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 Sláturfélags Suðurlands svf has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Sláturfélags Suðurlands svf Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.3%. 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 46%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Sláturfélags Suðurlands svf has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 23% return over the last year. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Sláturfélags Suðurlands svf we've found 4 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Sláturfélags Suðurlands svf 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.