There's Been No Shortage Of Growth Recently For Havila Kystruten's (OB:HKY) Returns On Capital

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Havila Kystruten (OB:HKY) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Havila Kystruten, this is the formula:

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

0.0012 = kr4.8m ÷ (kr4.6b - kr511m) (Based on the trailing twelve months to December 2024).

So, Havila Kystruten has an ROCE of 0.1%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 8.7%.

View our latest analysis for Havila Kystruten

Above you can see how the current ROCE for Havila Kystruten compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Havila Kystruten for free.

What Does the ROCE Trend For Havila Kystruten Tell Us?

We're delighted to see that Havila Kystruten is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.1% on its capital. And unsurprisingly, like most companies trying to break into the black, Havila Kystruten is utilizing 800% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 11%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Havila Kystruten's ROCE

Overall, Havila Kystruten gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has dived 94% over the last three years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Havila Kystruten (of which 1 is a bit unpleasant!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.