There's Been No Shortage Of Growth Recently For Nordic LEVEL Group AB (publ.)'s (STO:LEVEL) 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? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Nordic LEVEL Group AB (publ.) (STO:LEVEL) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Nordic LEVEL Group AB (publ.), this is the formula:

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

0.01 = kr2.2m ÷ (kr385m - kr168m) (Based on the trailing twelve months to March 2024).

So, Nordic LEVEL Group AB (publ.) has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Electronic industry average of 16%.

See our latest analysis for Nordic LEVEL Group AB (publ.)

In the above chart we have measured Nordic LEVEL Group AB (publ.)'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 analyst report for Nordic LEVEL Group AB (publ.) .

What Can We Tell From Nordic LEVEL Group AB (publ.)'s ROCE Trend?

Nordic LEVEL Group AB (publ.) has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 1.0% which is a sight for sore eyes. Not only that, but the company is utilizing 1,089% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 44%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see. However, current liabilities are still at a pretty high level, so just be aware that this can bring with it some risks.

The Bottom Line

To the delight of most shareholders, Nordic LEVEL Group AB (publ.) has now broken into profitability. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Nordic LEVEL Group AB (publ.), we've spotted 3 warning signs, and 1 of them is potentially serious.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.