We love these underlying trends in return on capital at NIBE Industrier (STO: NIBE B)


There are a few key trends to look for if we are to identify the next multi-bagger. In a perfect world, we would like a business to invest more capital in their business, and ideally the returns from that capital increase as well. This shows us that it is a composing machine, capable of continually reinvesting its profits in the business and generating higher returns. Speaking of which, we have noticed some big changes in NIBE Industry (STO: NIBE B) returns the capital, so let’s take a look.

Return on capital employed (ROCE): what is it?

For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. The formula for this calculation on NIBE Industrier is:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.13 = kr4.0b (kr40b – kr9.0b) (Based on the last twelve months up to June 2021).

So, NIBE Industrier has a ROCE of 13%. This is a relatively normal return on capital, and it is around the 14% generated by the construction industry.

See our latest review for NIBE Industrier

OM: NIBE B Return on capital employed on November 7, 2021

Above you can see how NIBE Industrier’s current ROCE compares to its previous returns on capital, but there is little you can say about the past. If you’d like to see what analysts are forecasting for the future, you should check out our free report for NIBE Industrier.

So what’s the ROCE trend for NIBE Industrier?

Investors would be delighted with what is happening at NIBE Industrier. Over the past five years, returns on capital employed have increased substantially to 13%. Basically the business is making more per dollar of capital invested and on top of that 82% more capital is also being used now. This may indicate that there are many opportunities to invest capital in-house and at ever higher rates, a common combination among multi-baggers.

In conclusion…

In summary, it is great to see that NIBE Industrier can increase returns by systematically reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought after multi-baggers. And a remarkable 734% total return over the past five years tells us that investors expect more good things to come in the future. So, given that the stock has proven to have some promising trends, it’s worth doing more research on the company to see if these trends are likely to continue.

One more thing, we spotted 2 warning signs facing NIBE Industrier that you might find interesting.

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

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.

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