Returns On Capital Are Showing Encouraging Signs At Investment AB Latour (STO:LATO B)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. 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 looked at Investment AB Latour (STO:LATO B) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Investment AB Latour:

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

0.057 = kr2.2b ÷ (kr43b - kr4.1b) (Based on the trailing twelve months to March 2021).

Therefore, Investment AB Latour has an ROCE of 5.7%. On its own, that's a low figure but it's around the 6.9% average generated by the Industrials industry.

Check out our latest analysis for Investment AB Latour

Historical performance is a great place to start when researching a stock so above you can see the gauge for Investment AB Latour's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Investment AB Latour, check out these free graphs here.

What Does the ROCE Trend For Investment AB Latour Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 5.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 99% more capital is being employed now too. So we're very much inspired by what we're seeing at Investment AB Latour thanks to its ability to profitably reinvest capital.

Our Take On Investment AB Latour's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Investment AB Latour has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to continue researching Investment AB Latour, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Investment AB Latour 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. 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.
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