Returns On Capital At Lerøy Seafood Group (OB:LSG) Have Stalled

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 Lerøy Seafood Group (OB:LSG), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What Is It?

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 Lerøy Seafood Group, this is the formula:

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

0.083 = kr2.8b ÷ (kr40b - kr6.4b) (Based on the trailing twelve months to June 2024).

So, Lerøy Seafood Group has an ROCE of 8.3%. In absolute terms, that's a low return but it's around the Food industry average of 9.9%.

See our latest analysis for Lerøy Seafood Group

In the above chart we have measured Lerøy Seafood Group's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Lerøy Seafood Group .

How Are Returns Trending?

The returns on capital haven't changed much for Lerøy Seafood Group in recent years. The company has consistently earned 8.3% for the last five years, and the capital employed within the business has risen 32% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From Lerøy Seafood Group's ROCE

As we've seen above, Lerøy Seafood Group's returns on capital haven't increased but it is reinvesting in the business. And with the stock having returned a mere 2.6% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Lerøy Seafood Group, we've discovered 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.