Here's What To Make Of Aktieselskabet Schouw's (CPH:SCHO) Decelerating Rates Of Return
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Aktieselskabet Schouw (CPH:SCHO) has the makings of a multi-bagger going forward, but let's have a look at why that may be.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Aktieselskabet Schouw:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.095 = kr.1.7b ÷ (kr.28b - kr.9.7b) (Based on the trailing twelve months to September 2025).
Thus, Aktieselskabet Schouw has an ROCE of 9.5%. In absolute terms, that's a low return but it's around the Food industry average of 10%.
Check out our latest analysis for Aktieselskabet Schouw
Above you can see how the current ROCE for Aktieselskabet Schouw compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Aktieselskabet Schouw .
How Are Returns Trending?
In terms of Aktieselskabet Schouw's historical ROCE trend, it doesn't exactly demand attention. The company has employed 55% more capital in the last five years, and the returns on that capital have remained stable at 9.5%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.
What We Can Learn From Aktieselskabet Schouw's ROCE
In conclusion, Aktieselskabet Schouw has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 16% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
Aktieselskabet Schouw could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for SCHO on our platform quite valuable.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.