Sláturfélags Suðurlands svf (ICE:SFS B) Will Be Hoping To Turn Its Returns On Capital Around

There are a few key trends to look for if we want to identify the next 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Sláturfélags Suðurlands svf (ICE:SFS B), we don't think it's current trends fit the mold of a multi-bagger.

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. 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)

0.061 = Kr545m ÷ (Kr11b - Kr1.8b) (Based on the trailing twelve months to June 2022).

Thus, Sláturfélags Suðurlands svf has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Food industry average of 7.9%.

See 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 want to delve into the historical earnings, revenue and cash flow of Sláturfélags Suðurlands svf, check out these free graphs here.

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

When we looked at the ROCE trend at Sláturfélags Suðurlands svf, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 6.1% from 12% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Sláturfélags Suðurlands svf's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Sláturfélags Suðurlands svf is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 76% to shareholders over the last three years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Sláturfélags Suðurlands svf does come with some risks though, we found 4 warning signs in our investment analysis, and 3 of those shouldn't be ignored...

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.