Byggfakta Group Nordic HoldCo (STO:BFG) Is Looking To Continue Growing Its Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. 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 Byggfakta Group Nordic HoldCo's (STO:BFG) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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 Byggfakta Group Nordic HoldCo is:

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

0.016 = kr189m ÷ (kr13b - kr1.4b) (Based on the trailing twelve months to December 2022).

So, Byggfakta Group Nordic HoldCo has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Software industry average of 8.8%.

View our latest analysis for Byggfakta Group Nordic HoldCo

In the above chart we have measured Byggfakta Group Nordic HoldCo'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 Byggfakta Group Nordic HoldCo here for free.

SWOT Analysis for Byggfakta Group Nordic HoldCo

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last two years to 1.6%. Basically the business is earning more per dollar of capital invested and in addition to that, 120% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Byggfakta Group Nordic HoldCo has. Astute investors may have an opportunity here because the stock has declined 24% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to continue researching Byggfakta Group Nordic HoldCo, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Byggfakta Group Nordic HoldCo 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.