Svenska Cellulosa Aktiebolaget (STO:SCA B) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Svenska Cellulosa Aktiebolaget's (STO:SCA B) returns on capital, so let's have a look.

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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 Svenska Cellulosa Aktiebolaget is:

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

0.025 = kr3.5b ÷ (kr149b - kr8.9b) (Based on the trailing twelve months to June 2025).

Therefore, Svenska Cellulosa Aktiebolaget has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Forestry industry average of 6.1%.

View our latest analysis for Svenska Cellulosa Aktiebolaget

Above you can see how the current ROCE for Svenska Cellulosa Aktiebolaget compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Svenska Cellulosa Aktiebolaget .

What The Trend Of ROCE Can Tell Us

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 2.5%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 53%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

All in all, it's terrific to see that Svenska Cellulosa Aktiebolaget is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 8.3% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing Svenska Cellulosa Aktiebolaget, we've discovered 2 warning signs that you should be aware of.

While Svenska Cellulosa Aktiebolaget 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.

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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.