Slowing Rates Of Return At Boliden (STO:BOL) Leave Little Room For Excitement

Published
July 19, 2022
OM:BOL
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There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Boliden's (STO:BOL) ROCE trend, we were pretty happy with what we saw.

What is 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. Analysts use this formula to calculate it for Boliden:

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

0.18 = kr13b ÷ (kr88b - kr14b) (Based on the trailing twelve months to March 2022).

Therefore, Boliden has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 12% generated by the Metals and Mining industry.

See our latest analysis for Boliden

roce
OM:BOL Return on Capital Employed July 19th 2022

In the above chart we have measured Boliden'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 report for Boliden.

So How Is Boliden's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 64% in that time. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

In the end, Boliden has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 58% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing: We've identified 2 warning signs with Boliden (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

While Boliden 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 helping make it simple.

Find out whether Boliden is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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