Investors at Indutrade (STO: INDT) have faced slowing returns on capital
If we want to find a stock that could multiply over the long term, what underlying trends should we be looking for? Among other things, we want to see two things; first, a growing one return on the capital employed (ROCE) and, secondly, an expansion of the company quantity of the capital employed. Put simply, these types of companies are compounding machines, which means that they continuously reinvest their profits with ever higher returns. That’s why when we took a quick look at each other Indutrades (STO: INDT) ROCE trend, we were pretty happy with what we saw.
What is return on investment (ROCE)?
For those unsure of what ROCE is, it measures the amount of pre-tax profit a company can make from the capital invested in its business. Analysts use this formula to calculate it for Indutrade:
Return on capital employed = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)
0.16 = kr2.3b ÷ (kr19b – kr5.4b) (Based on the last twelve months through March 2021).
So, Indutrade has a ROCE of 16%. That is a relatively normal return on investment and is around 14% that the machine industry generates.
Check out our latest analysis for Indutrade
The above shows how the current ROCE for Indutrade compares to its previous ROI, but there is only so much you can say about the past. If you are interested, you can read the analyst forecasts in our free Report on analyst forecast for the company.
How is Indutrade’s ROCE developing?
Current returns on investment, while decent, haven’t changed much. The company has earned a steady 16% over the past five years, and the company’s capital has increased 128% over that time. 16% is pretty much a standard return, and there is some comfort in knowing that Indutrade has consistently made that amount. Stable returns at this ballpark can be little exciting, but if they can be sustained over the long term, they often offer nice rewards to shareholders.
In summary, Indutrade has simply continually reinvested capital at those decent returns. Additionally, the stock has rewarded shareholders with a remarkable 339% return over those who have held them over the past five years. While investors seem to be recognizing these promising trends, we nonetheless believe the stock deserves further investigation.
In the end we established 2 warning signs for Indutrade that we think you should be aware of.
For those who like to invest solid companies, look at that free List of companies with solid balance sheets and high returns on equity.
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