Returns At ScandBook Holding (STO:SBOK) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So on that note, ScandBook Holding (STO:SBOK) looks quite promising in regards to its trends of return on capital.

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 ScandBook Holding is:

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

0.097 = kr27m ÷ (kr332m - kr50m) (Based on the trailing twelve months to September 2023).

So, ScandBook Holding has an ROCE of 9.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.9%.

See our latest analysis for ScandBook Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for ScandBook Holding's ROCE against it's prior returns. If you're interested in investigating ScandBook Holding's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From ScandBook Holding's ROCE Trend?

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 9.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 24% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

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 ScandBook Holding has. Since the stock has returned a staggering 149% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

ScandBook Holding does have some risks though, and we've spotted 3 warning signs for ScandBook Holding that you might be interested in.

While ScandBook Holding 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.