A Look Into Lifco's (STO:LIFCO B) Impressive Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Ergo, when we looked at the ROCE trends at Lifco (STO:LIFCO B), we liked what we saw.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Lifco, this is the formula:

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

0.20 = kr2.9b ÷ (kr22b - kr7.4b) (Based on the trailing twelve months to June 2021).

Thus, Lifco has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Industrials industry average of 6.9%.

See our latest analysis for Lifco

Above you can see how the current ROCE for Lifco compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Lifco here for free.

So How Is Lifco's ROCE Trending?

We'd be pretty happy with returns on capital like Lifco. Over the past five years, ROCE has remained relatively flat at around 20% and the business has deployed 146% more capital into its operations. Now considering ROCE is an attractive 20%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Lifco can keep this up, we'd be very optimistic about its future.

What We Can Learn From Lifco's ROCE

Lifco has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 427% return to those who've held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Like most companies, Lifco does come with some risks, and we've found 2 warning signs that you should be aware of.

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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