Yahoo Finance Investors Will Want Orell Füssli's (VTX:OFN) Growth In ROCE To Persist
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Orell Füssli (VTX:OFN) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Orell Füssli:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = CHF15m ÷ (CHF180m - CHF38m) (Based on the trailing twelve months to June 2022).
Thus, Orell Füssli has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.9% generated by the Commercial Services industry.
View our latest analysis for Orell Füssli
In the above chart we have measured Orell Füssli's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is Orell Füssli's ROCE Trending?
Orell Füssli has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 20% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
In Conclusion...
To sum it up, Orell Füssli is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 11% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
On a separate note, we've found 1 warning sign for Orell Füssli you'll probably want to know about.
While Orell Füssli 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.
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