Here's What To Make Of Slitevind's (STO:SLITE) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Slitevind (STO:SLITE) and its ROCE trend, we weren't exactly thrilled.

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

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 Slitevind:

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

0.025 = kr15m ÷ (kr648m - kr47m) (Based on the trailing twelve months to September 2020).

Thus, Slitevind has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Renewable Energy industry average of 6.2%.

View our latest analysis for Slitevind

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Slitevind's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Slitevind's ROCE Trend?

There are better returns on capital out there than what we're seeing at Slitevind. Over the past two years, ROCE has remained relatively flat at around 2.5% and the business has deployed 23% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

What We Can Learn From Slitevind's ROCE

In conclusion, Slitevind has been investing more capital into the business, but returns on that capital haven't increased. Additionally, the stock's total return to shareholders over the last year has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Slitevind has the makings of a multi-bagger.

One final note, you should learn about the 6 warning signs we've spotted with Slitevind (including 2 which are a bit concerning) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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