Returns On Capital At Austevoll Seafood (OB:AUSS) Have Stalled

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after briefly looking over the numbers, we don't think Austevoll Seafood (OB:AUSS) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Our free stock report includes 2 warning signs investors should be aware of before investing in Austevoll Seafood. Read for free now.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Austevoll Seafood, this is the formula:

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

0.088 = kr4.1b ÷ (kr56b - kr9.6b) (Based on the trailing twelve months to December 2024).

Thus, Austevoll Seafood has an ROCE of 8.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.7%.

View our latest analysis for Austevoll Seafood

Above you can see how the current ROCE for Austevoll Seafood 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 Austevoll Seafood .

The Trend Of ROCE

The returns on capital haven't changed much for Austevoll Seafood in recent years. The company has consistently earned 8.8% for the last five years, and the capital employed within the business has risen 34% in that time. 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 Austevoll Seafood's ROCE

Long story short, while Austevoll Seafood has been reinvesting its capital, the returns that it's generating haven't increased. Since the stock has gained an impressive 59% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

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

While Austevoll Seafood may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.