Investors Will Want Cheffelo's (STO:CHEF) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Cheffelo (STO:CHEF) looks quite promising in regards to its trends of return on capital.

What Is 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. Analysts use this formula to calculate it for Cheffelo:

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

0.045 = kr28m ÷ (kr792m - kr175m) (Based on the trailing twelve months to September 2023).

So, Cheffelo has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.1%.

Check out our latest analysis for Cheffelo

In the above chart we have measured Cheffelo's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Cheffelo .

So How Is Cheffelo's ROCE Trending?

While there are companies with higher returns on capital out there, we still find the trend at Cheffelo promising. More specifically, while the company has kept capital employed relatively flat over the last four years, the ROCE has climbed 367% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Cheffelo's ROCE

To bring it all together, Cheffelo has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last year, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 1 warning sign for Cheffelo that we think you should be aware of.

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. 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.