Will the Promising Trends At ScandBook Holding (STO:SBOK) Continue?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in ScandBook Holding's (STO:SBOK) returns on capital, so let's have a look.

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. 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)

0.084 = kr19m ÷ (kr275m - kr45m) (Based on the trailing twelve months to December 2020).

Therefore, ScandBook Holding has an ROCE of 8.4%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 8.6%.

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.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.4%. The amount of capital employed has increased too, by 20%. 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 On ScandBook Holding's ROCE

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. Since the stock has returned a solid 74% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if ScandBook Holding can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with ScandBook Holding and understanding them should be part of your investment process.

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.

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This article by Simply Wall St is general in nature. 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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