There Are Reasons To Feel Uneasy About Aker BioMarine's (OB:AKBM) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Aker BioMarine (OB:AKBM), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Aker BioMarine is:

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

0.01 = US$7.3m ÷ (US$815m - US$104m) (Based on the trailing twelve months to September 2023).

So, Aker BioMarine has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 8.3%.

See our latest analysis for Aker BioMarine

In the above chart we have measured Aker BioMarine's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Aker BioMarine here for free.

The Trend Of ROCE

On the surface, the trend of ROCE at Aker BioMarine doesn't inspire confidence. Around five years ago the returns on capital were 2.2%, but since then they've fallen to 1.0%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On Aker BioMarine's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Aker BioMarine. However, despite the promising trends, the stock has fallen 52% over the last three years, so there might be an opportunity here for astute investors. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you're still interested in Aker BioMarine it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Aker BioMarine 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.