Some Investors May Be Worried About Lerøy Seafood Group's (OB:LSG) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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)

0.078 = kr2.7b ÷ (kr41b - kr6.2b) (Based on the trailing twelve months to March 2024).

So, Lerøy Seafood Group has an ROCE of 7.8%. On its own, that's a low figure but it's around the 6.9% average generated by the Food industry.

Check out 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 .

What Can We Tell From Lerøy Seafood Group's ROCE Trend?

When we looked at the ROCE trend at Lerøy Seafood Group, we didn't gain much confidence. Around five years ago the returns on capital were 11%, but since then they've fallen to 7.8%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Lerøy Seafood Group's ROCE

While returns have fallen for Lerøy Seafood Group in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 15% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing to note, we've identified 1 warning sign with Lerøy Seafood Group and understanding this should be part of your investment process.

While Lerøy Seafood Group 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.

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