Should You Be Impressed By Götenehus Group's (STO:GHUS B) Returns on Capital?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Götenehus Group (STO:GHUS B) looks decent, right now, so lets see what the trend of returns can tell us.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Götenehus Group, this is the formula:

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

0.11 = kr55m ÷ (kr803m - kr311m) (Based on the trailing twelve months to September 2020).

Thus, Götenehus Group has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.5% generated by the Consumer Durables industry.

View our latest analysis for Götenehus Group

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

What Can We Tell From Götenehus Group's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 65% more capital in the last five years, and the returns on that capital have remained stable at 11%. 11% is a pretty standard return, and it provides some comfort knowing that Götenehus Group has consistently earned this amount. 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.

The Key Takeaway

To sum it up, Götenehus Group has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 63% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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

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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