Here's What Addtech AB (publ.)'s (STO:ADDT B) Strong Returns On Capital Mean

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So, when we ran our eye over Addtech AB (publ.)'s (STO:ADDT B) trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Addtech AB (publ.):

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

0.21 = kr2.3b ÷ (kr17b - kr5.8b) (Based on the trailing twelve months to June 2023).

So, Addtech AB (publ.) has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 16%.

See our latest analysis for Addtech AB (publ.)

In the above chart we have measured Addtech AB (publ.)'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 report on analyst forecasts for the company.

So How Is Addtech AB (publ.)'s ROCE Trending?

In terms of Addtech AB (publ.)'s history of ROCE, it's quite impressive. The company has employed 227% more capital in the last five years, and the returns on that capital have remained stable at 21%. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Addtech AB (publ.) can keep this up, we'd be very optimistic about its future.

Our Take On Addtech AB (publ.)'s ROCE

In summary, we're delighted to see that Addtech AB (publ.) has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. And long term investors would be thrilled with the 284% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a separate note, we've found 1 warning sign for Addtech AB (publ.) you'll probably want to know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.