The Returns At Systemair (STO:SYSR) Aren't Growing

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Systemair's (STO:SYSR) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Systemair, this is the formula:

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

0.14 = kr980m ÷ (kr9.9b - kr3.1b) (Based on the trailing twelve months to July 2024).

So, Systemair has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Building industry average of 12% it's much better.

Check out our latest analysis for Systemair

In the above chart we have measured Systemair's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Systemair for free.

What Can We Tell From Systemair's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 54% more capital in the last five years, and the returns on that capital have remained stable at 14%. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

Our Take On Systemair's ROCE

The main thing to remember is that Systemair has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 145% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Systemair does have some risks though, and we've spotted 1 warning sign for Systemair that you might be interested in.

While Systemair 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.