We Like These Underlying Return On Capital Trends At Arctic Fish Holding (OB:AFISH)

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Arctic Fish Holding's (OB:AFISH) returns on capital, so let's have a look.

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 Arctic Fish Holding, this is the formula:

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

0.099 = kr129m ÷ (kr1.4b - kr137m) (Based on the trailing twelve months to December 2021).

Therefore, Arctic Fish Holding has an ROCE of 9.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.5%.

View our latest analysis for Arctic Fish Holding

In the above chart we have measured Arctic Fish Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Arctic Fish Holding.

The Trend Of ROCE

The fact that Arctic Fish Holding is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 9.9% on its capital. In addition to that, Arctic Fish Holding is employing 211% more capital than previously which is expected of a company that's trying to break into profitability. 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.

What We Can Learn From Arctic Fish Holding's ROCE

In summary, it's great to see that Arctic Fish Holding has managed to break into profitability and is continuing to reinvest in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 60% return over the last year. In light of that, we think it's worth looking further into this stock because if Arctic Fish Holding can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Arctic Fish Holding, we've spotted 2 warning signs, and 1 of them is concerning.

While Arctic Fish Holding 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.