NIBE Industrier (STO:NIBE B) Is Experiencing Growth In Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in NIBE Industrier's (STO:NIBE B) returns on capital, so let's have a look.

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

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 NIBE Industrier is:

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

0.12 = kr4.3b ÷ (kr45b - kr9.6b) (Based on the trailing twelve months to March 2022).

So, NIBE Industrier has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 14% generated by the Building industry.

View our latest analysis for NIBE Industrier

In the above chart we have measured NIBE Industrier's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for NIBE Industrier.

What Does the ROCE Trend For NIBE Industrier Tell Us?

NIBE Industrier is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 12%. Basically the business is earning more per dollar of capital invested and in addition to that, 66% more capital is being employed now too. So we're very much inspired by what we're seeing at NIBE Industrier thanks to its ability to profitably reinvest capital.

What We Can Learn From NIBE Industrier'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 NIBE Industrier 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.

While NIBE Industrier looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether NIBE B is currently trading for a fair price.

While NIBE Industrier may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.