We Like These Underlying Return On Capital Trends At Icelandic Salmon (OB:ISLAX)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Icelandic Salmon (OB:ISLAX) looks quite promising in regards to its trends of return on capital.

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 Icelandic Salmon, this is the formula:

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

0.14 = €24m ÷ (€228m - €64m) (Based on the trailing twelve months to June 2023).

So, Icelandic Salmon has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 12% generated by the Food industry.

See our latest analysis for Icelandic Salmon

In the above chart we have measured Icelandic Salmon'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 Icelandic Salmon here for free.

How Are Returns Trending?

Icelandic Salmon is displaying some positive trends. The data shows that returns on capital have increased substantially over the last three years to 14%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 49%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

To sum it up, Icelandic Salmon has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 70% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

Icelandic Salmon does have some risks though, and we've spotted 1 warning sign for Icelandic Salmon that you might be interested in.

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.