Here's What's Concerning About Alcadon Group's (STO:ALCA) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Alcadon Group (STO:ALCA), it didn't seem to tick all of these boxes.

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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. The formula for this calculation on Alcadon Group is:

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

0.067 = kr82m ÷ (kr1.6b - kr393m) (Based on the trailing twelve months to March 2025).

Thus, Alcadon Group has an ROCE of 6.7%. Ultimately, that's a low return and it under-performs the Electronic industry average of 14%.

Check out our latest analysis for Alcadon Group

Above you can see how the current ROCE for Alcadon Group 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 Alcadon Group for free.

How Are Returns Trending?

In terms of Alcadon Group's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 9.5%, but since then they've fallen to 6.7%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Alcadon Group's ROCE

Bringing it all together, while we're somewhat encouraged by Alcadon Group's reinvestment in its own business, we're aware that returns are shrinking. And investors may be recognizing these trends since the stock has only returned a total of 12% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Alcadon Group does have some risks though, and we've spotted 1 warning sign for Alcadon Group that you might be interested in.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.