What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Thule Group's (STO:THULE) trend of ROCE, we liked what we saw.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Thule Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = kr1.4b ÷ (kr12b - kr1.6b) (Based on the trailing twelve months to March 2023).
So, Thule Group has an ROCE of 13%. By itself that's a normal return on capital and it's in line with the industry's average returns of 13%.
See our latest analysis for Thule Group
Above you can see how the current ROCE for Thule 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 Thule Group here for free.
What Does the ROCE Trend For Thule Group Tell Us?
While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 13% and the business has deployed 57% more capital into its operations. 13% is a pretty standard return, and it provides some comfort knowing that Thule 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 Bottom Line On Thule Group's ROCE
In the end, Thule Group has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 49% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
If you'd like to know more about Thule Group, we've spotted 3 warning signs, and 1 of them makes us a bit uncomfortable.
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.
Valuation is complex, but we're here to simplify it.
Discover if Thule Group might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About OM:THULE
Thule Group
Operates as a sports and outdoor company in Sweden and internationally.
Flawless balance sheet with high growth potential and pays a dividend.