There's Been No Shortage Of Growth Recently For Investment AB Latour's (STO:LATO B) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Speaking of which, we noticed some great changes in Investment AB Latour's (STO:LATO B) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.071 = kr3.4b ÷ (kr60b - kr11b) (Based on the trailing twelve months to March 2023).

Thus, Investment AB Latour has an ROCE of 7.1%. In absolute terms, that's a low return but it's around the Industrials industry average of 8.6%.

See 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're interested in investigating Investment AB Latour's past further, check out this free graph of past earnings, revenue and cash flow.

SWOT Analysis for Investment AB Latour

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 numbers show that in the last five years, the returns generated on capital employed have grown considerably to 7.1%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 94%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

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.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

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. 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.