Byggfakta Group Nordic HoldCo's (STO:BFG) Returns On Capital Are Heading Higher

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Byggfakta Group Nordic HoldCo (STO:BFG) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Byggfakta Group Nordic HoldCo:

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

0.012 = kr137m ÷ (kr13b - kr1.3b) (Based on the trailing twelve months to September 2022).

Thus, Byggfakta Group Nordic HoldCo has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Software industry average of 13%.

Our analysis indicates that BFG is potentially undervalued!

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 to see what analysts are forecasting going forward, you should check out our free report for Byggfakta Group Nordic HoldCo.

What The Trend Of ROCE Can Tell Us

While there are companies with higher returns on capital out there, we still find the trend at Byggfakta Group Nordic HoldCo promising. The figures show that over the last one year, ROCE has grown 84% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. 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.

What We Can Learn From Byggfakta Group Nordic HoldCo's ROCE

As discussed above, Byggfakta Group Nordic HoldCo appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Given the stock has declined 36% in the last year, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

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.