Nimbus Group (STO:BOAT) Is Achieving High Returns On Its Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Nimbus Group (STO:BOAT) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Nimbus Group is:

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

0.20 = kr188m ÷ (kr1.4b - kr434m) (Based on the trailing twelve months to September 2022).

Therefore, Nimbus Group has an ROCE of 20%. On its own that's a fantastic return on capital, though it's the same as the Leisure industry average of 20%.

View our latest analysis for Nimbus Group

Above you can see how the current ROCE for Nimbus Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Nimbus Group here for free.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Nimbus Group. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 20%. The amount of capital employed has increased too, by 399%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Nimbus Group has decreased current liabilities to 32% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Nimbus Group's ROCE

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 Nimbus Group has. Given the stock has declined 48% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about Nimbus Group, we've spotted 4 warning signs, and 2 of them are a bit unpleasant.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.