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We Like Skellerup Holdings' (NZSE:SKL) Returns And Here's How They're Trending

There are a few key trends to look for if we want to identify the next multi-bagger. 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. And in light of that, the trends we're seeing at Skellerup Holdings' (NZSE:SKL) look very promising so lets take a look.

Understanding 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 Skellerup Holdings:

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

0.24 = NZ$70m ÷ (NZ$331m - NZ$36m) (Based on the trailing twelve months to December 2023).

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Therefore, Skellerup Holdings has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

View our latest analysis for Skellerup Holdings

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In the above chart we have measured Skellerup Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Skellerup Holdings .

The Trend Of ROCE

Skellerup Holdings is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 24%. The amount of capital employed has increased too, by 35%. So we're very much inspired by what we're seeing at Skellerup Holdings thanks to its ability to profitably reinvest capital.

What We Can Learn From Skellerup Holdings' ROCE

To sum it up, Skellerup Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 152% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Skellerup Holdings can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with Skellerup Holdings and understanding them should be part of your investment process.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.