ScandBook Holding (STO:SBOK) Is Looking To Continue Growing Its Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in ScandBook Holding's (STO:SBOK) 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. To calculate this metric for ScandBook Holding, this is the formula:

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

0.10 = kr24m ÷ (kr284m - kr47m) (Based on the trailing twelve months to June 2021).

Thus, ScandBook Holding has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Commercial Services industry average of 9.4%.

Check out 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'd like to look at how ScandBook Holding has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For ScandBook Holding Tell Us?

ScandBook Holding is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 25%. So we're very much inspired by what we're seeing at ScandBook Holding thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, ScandBook Holding has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 2 warning signs for ScandBook Holding you'll probably want to know about.

While ScandBook Holding 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.

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.

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