Investors Met With Slowing Returns on Capital At Nederman Holding (STO:NMAN)

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Nederman Holding's (STO:NMAN) trend of ROCE, we liked what we saw.

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 Nederman Holding is:

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

0.12 = kr582m ÷ (kr6.6b - kr1.9b) (Based on the trailing twelve months to September 2023).

So, Nederman Holding has an ROCE of 12%. That's a pretty standard return and it's in line with the industry average of 12%.

View our latest analysis for Nederman Holding

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

What Does the ROCE Trend For Nederman Holding Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 102% more capital into its operations. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

The main thing to remember is that Nederman Holding has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 111% return they've received over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

If you'd like to know about the risks facing Nederman Holding, we've discovered 2 warning signs 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.