We Like These Underlying Return On Capital Trends At Billerud (STO:BILL)

June 07, 2023

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Billerud's (STO:BILL) returns on capital, so let's have a look.

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 Billerud is:

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

0.13 = kr5.1b ÷ (kr51b - kr12b) (Based on the trailing twelve months to March 2023).

So, Billerud has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 12% generated by the Packaging industry.

View our latest analysis for Billerud

In the above chart we have measured Billerud's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Billerud

Strength

Earnings growth over the past year exceeded the industry.

Debt is not viewed as a risk.

Dividends are covered by earnings and cash flows.

Dividend is in the top 25% of dividend payers in the market.

Dividend information for BILL.

Weakness

Shareholders have been diluted in the past year.

Opportunity

Good value based on P/E ratio and estimated fair value.

Threat

Annual earnings are forecast to decline for the next 3 years.

What else are analysts forecasting for BILL?

The Trend Of ROCE

We like the trends that we're seeing from Billerud. The data shows that returns on capital have increased substantially over the last five years to 13%. The amount of capital employed has increased too, by 58%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Billerud's ROCE

All in all, it's terrific to see that Billerud is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 13% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to know some of the risks facing Billerud we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

While Billerud may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

Valuation is complex, but we're here to simplify it.

Discover if Billerud might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.