We Like These Underlying Return On Capital Trends At Skåne-möllan (STO:SKMO)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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.

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 Skåne-möllan is:

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

0.14 = kr23m ÷ (kr193m - kr30m) (Based on the trailing twelve months to June 2023).

So, Skåne-möllan has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 8.9% it's much better.

View our latest analysis for Skåne-möllan

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.

So How Is Skåne-möllan's ROCE Trending?

Skåne-möllan is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 53% over the last five years. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From 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 with a respectable 95% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. 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.

If you'd like to know about the risks facing Skåne-möllan, we've discovered 1 warning sign that you should be aware of.

While Skåne-möllan isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.