The Returns At Lagercrantz Group (STO:LAGR B) Aren't Growing

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. With that in mind, the ROCE of Lagercrantz Group (STO:LAGR B) looks decent, right now, so lets see what the trend of returns can tell us.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Lagercrantz Group is:

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

0.16 = kr1.5b ÷ (kr12b - kr2.9b) (Based on the trailing twelve months to September 2025).

So, Lagercrantz Group has an ROCE of 16%. By itself that's a normal return on capital and it's in line with the industry's average returns of 16%.

See our latest analysis for Lagercrantz Group

In the above chart we have measured Lagercrantz Group's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Lagercrantz Group for free.

So How Is Lagercrantz Group's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 241% more capital in the last five years, and the returns on that capital have remained stable at 16%. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Lagercrantz Group has done well to reduce current liabilities to 24% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line On Lagercrantz Group's ROCE

The main thing to remember is that Lagercrantz Group has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 173% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Like most companies, Lagercrantz Group does come with some risks, and we've found 1 warning sign that you should be aware of.

While Lagercrantz Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.