The Returns At FRoSTA (FRA:NLM) Aren't Growing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of FRoSTA (FRA:NLM) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on FRoSTA is:

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

0.16 = €46m ÷ (€433m - €146m) (Based on the trailing twelve months to December 2023).

So, FRoSTA has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Food industry.

Check out our latest analysis for FRoSTA

roce

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 FRoSTA's past further, check out this free graph covering FRoSTA's past earnings, revenue and cash flow.

What Can We Tell From FRoSTA's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 44% more capital into its operations. 16% is a pretty standard return, and it provides some comfort knowing that FRoSTA has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From FRoSTA's ROCE

In the end, FRoSTA has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 27% over the last five years for shareholders who have owned the stock in this period. So to determine if FRoSTA is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

While FRoSTA doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for NLM on our platform.

While FRoSTA isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.