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

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. In light of that, when we looked at Aker BioMarine (OB:AKBM) and its ROCE trend, we weren't exactly thrilled.

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 Aker BioMarine, this is the formula:

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

0.014 = US$9.6m ÷ (US$814m - US$114m) (Based on the trailing twelve months to March 2024).

Thus, Aker BioMarine has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.9%.

Check out 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 for free.

What The Trend Of ROCE Can Tell Us

In terms of Aker BioMarine's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.4% from 2.5% five years ago. 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.

What We Can Learn From Aker BioMarine's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Aker BioMarine is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 48% to shareholders over the last three years. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

If you're still interested in Aker BioMarine it's worth checking out our FREE intrinsic value approximation for AKBM 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com