Nordic Paper Holding (STO:NPAPER) Is Achieving High Returns On Its Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Speaking of which, we noticed some great changes in Nordic Paper Holding's (STO:NPAPER) returns on capital, so let's have a look.

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. To calculate this metric for Nordic Paper Holding, this is the formula:

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

0.29 = kr710m ÷ (kr3.7b - kr1.2b) (Based on the trailing twelve months to September 2023).

Therefore, Nordic Paper Holding has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Forestry industry average of 12%.

View our latest analysis for Nordic Paper Holding

Above you can see how the current ROCE for Nordic Paper Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Nordic Paper Holding here for free.

What Can We Tell From Nordic Paper Holding's ROCE Trend?

We like the trends that we're seeing from Nordic Paper Holding. The data shows that returns on capital have increased substantially over the last three years to 29%. The amount of capital employed has increased too, by 65%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Nordic Paper Holding's ROCE

All in all, it's terrific to see that Nordic Paper Holding is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 25% return over the last three years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One final note, you should learn about the 3 warning signs we've spotted with Nordic Paper Holding (including 1 which makes us a bit uncomfortable) .

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.