These Return Metrics Don't Make New Nordic Healthbrands (STO:NNH) Look Too Strong

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. On that note, looking into New Nordic Healthbrands (STO:NNH), we weren't too upbeat about how things were going.

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Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on New Nordic Healthbrands is:

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

0.042 = kr4.2m ÷ (kr249m - kr147m) (Based on the trailing twelve months to March 2025).

So, New Nordic Healthbrands has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Personal Products industry average of 13%.

See our latest analysis for New Nordic Healthbrands

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

So How Is New Nordic Healthbrands' ROCE Trending?

There is reason to be cautious about New Nordic Healthbrands, given the returns are trending downwards. To be more specific, the ROCE was 31% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect New Nordic Healthbrands to turn into a multi-bagger.

On a side note, New Nordic Healthbrands' current liabilities have increased over the last five years to 59% of total assets, effectively distorting the ROCE to some degree. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. And with current liabilities at these levels, suppliers or short-term creditors are effectively funding a large part of the business, which can introduce some risks.

The Bottom Line On New Nordic Healthbrands' ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Long term shareholders who've owned the stock over the last five years have experienced a 66% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

New Nordic Healthbrands does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...

While New Nordic Healthbrands 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.