Returns On Capital At Investment AB Latour (STO:LATO B) Have Hit The Brakes

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Investment AB Latour (STO:LATO B) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Investment AB Latour is:

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

0.061 = kr2.4b ÷ (kr46b - kr5.5b) (Based on the trailing twelve months to September 2021).

Therefore, Investment AB Latour has an ROCE of 6.1%. In absolute terms, that's a low return and it also under-performs the Industrials industry average of 7.6%.

See our latest analysis for Investment AB Latour

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Investment AB Latour's past further, check out this free graph of past earnings, revenue and cash flow.

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

In terms of Investment AB Latour's historical ROCE trend, it doesn't exactly demand attention. The company has employed 104% more capital in the last five years, and the returns on that capital have remained stable at 6.1%. 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.

The Bottom Line On Investment AB Latour's ROCE

As we've seen above, Investment AB Latour's returns on capital haven't increased but it is reinvesting in the business. Yet to long term shareholders the stock has gifted them an incredible 234% return in the last five years, so the market appears to be rosy about its future. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

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

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.