Skåne-möllan (STO:SKMO) Is Looking To Continue Growing Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 when we looked at Skåne-möllan (STO:SKMO) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Skåne-möllan, this is the formula:

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

0.13 = kr22m ÷ (kr204m - kr44m) (Based on the trailing twelve months to September 2022).

Thus, Skåne-möllan has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 8.8% it's much better.

Check out the opportunities and risks within the SE Food industry.

Historical performance is a great place to start when researching a stock so above you can see the gauge for Skåne-möllan's ROCE against it's prior returns. If you'd like to look at how Skåne-möllan has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Skåne-möllan Tell Us?

Skåne-möllan has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 51% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Skåne-möllan's ROCE

To bring it all together, Skåne-möllan has done well to increase the returns it's generating from its capital employed. And a remarkable 206% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Skåne-möllan can keep these trends up, it could have a bright future ahead.

Skåne-möllan does have some risks though, and we've spotted 2 warning signs for Skåne-möllan that you might be interested in.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.