The Trend Of High Returns At NOTE (STO:NOTE) Has Us Very Interested

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. And in light of that, the trends we're seeing at NOTE's (STO:NOTE) look very promising so lets take a look.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for NOTE:

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

0.21 = kr140m ÷ (kr1.1b - kr431m) (Based on the trailing twelve months to December 2020).

So, NOTE has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

Check out our latest analysis for NOTE

Historical performance is a great place to start when researching a stock so above you can see the gauge for NOTE's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of NOTE, check out these free graphs here.

So How Is NOTE's ROCE Trending?

Investors would be pleased with what's happening at NOTE. Over the last five years, returns on capital employed have risen substantially to 21%. The amount of capital employed has increased too, by 126%. So we're very much inspired by what we're seeing at NOTE thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 39%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that NOTE has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From NOTE's ROCE

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 NOTE has. And a remarkable 612% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. 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.
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