Returns On Capital Are Showing Encouraging Signs At Aker (OB:AKER)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Aker (OB:AKER) so let's look a bit deeper.

We've discovered 1 warning sign about Aker. View them for free.

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

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. To calculate this metric for Aker, this is the formula:

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

0.0064 = kr631m ÷ (kr108b - kr10b) (Based on the trailing twelve months to December 2024).

Therefore, Aker has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Industrials industry average of 6.8%.

Check out our latest analysis for Aker

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 , check out these free graphs detailing revenue and cash flow performance of Aker.

What The Trend Of ROCE Can Tell Us

The fact that Aker is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.6% on its capital. In addition to that, Aker is employing 20% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 9.3%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Aker has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

To the delight of most shareholders, Aker has now broken into profitability. And a remarkable 173% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing Aker that you might find interesting.

While Aker 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.