The Return Trends At Ice Fish Farm (OB:IFISH) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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 when we looked at Ice Fish Farm (OB:IFISH) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Ice Fish Farm, this is the formula:

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

0.016 = kr25m ÷ (kr1.7b - kr182m) (Based on the trailing twelve months to September 2021).

Thus, Ice Fish Farm has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Food industry average of 9.9%.

See our latest analysis for Ice Fish Farm

Above you can see how the current ROCE for Ice Fish Farm compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

The fact that Ice Fish Farm 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 three years ago but is is now generating 1.6% on its capital. Not only that, but the company is utilizing 545% more capital than before, but that's to be expected from a company 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 11%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Key Takeaway

To the delight of most shareholders, Ice Fish Farm has now broken into profitability. And since the stock has fallen 26% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Ice Fish Farm does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit concerning...

While Ice Fish Farm 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.