Investors Will Want Synsam's (STO:SYNSAM) Growth In ROCE To Persist

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Synsam's (STO:SYNSAM) 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 Synsam is:

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

0.10 = kr624m ÷ (kr8.1b - kr1.9b) (Based on the trailing twelve months to September 2023).

Thus, Synsam has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Specialty Retail industry average of 9.1%.

View our latest analysis for Synsam

In the above chart we have measured Synsam's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Synsam here for free.

What Can We Tell From Synsam's ROCE Trend?

Synsam's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last four years, the ROCE has climbed 56% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To bring it all together, Synsam has done well to increase the returns it's generating from its capital employed. And with a respectable 19% awarded to those who held the stock over the last year, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

Synsam does have some risks though, and we've spotted 2 warning signs for Synsam that you might be interested in.

While Synsam 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.