SSAB (STO:SSAB A) Is Investing Its Capital With Increasing Efficiency

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in SSAB's (STO:SSAB A) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on SSAB is:

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

0.28 = kr32b ÷ (kr148b - kr34b) (Based on the trailing twelve months to September 2022).

So, SSAB has an ROCE of 28%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

Check out the opportunities and risks within the SE Metals and Mining industry.

Above you can see how the current ROCE for SSAB 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 SSAB here for free.

What Does the ROCE Trend For SSAB Tell Us?

SSAB is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 28%. The amount of capital employed has increased too, by 67%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From SSAB's ROCE

All in all, it's terrific to see that SSAB 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 70% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

SSAB does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is significant...

SSAB is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.