Sandvik (STO: SAND) does what it takes to increase its share price
What are the first trends to look for to identify a title that could multiply over the long term? First, we will want to see a to return to on capital employed (ROCE) which increases and, on the other hand, a based capital employed. Put simply, these types of businesses are dialing machines, which means they continually reinvest their profits at ever higher rates of return. Speaking of which, we have noticed some big changes in Sandvik (STO: SAND) goes back to the capital, so let’s take a look.
Return on capital employed (ROCE): what is it?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. The formula for this calculation on Sandvik is:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.19 = kr19b ÷ (kr134b – kr37b) (Based on the last twelve months up to September 2021).
Thereby, Sandvik has a ROCE of 19%. In absolute terms, that’s a pretty normal performance, and it’s pretty close to the machinery industry average of 18%.
Check out our latest review for Sandvik
In the chart above, we’ve measured Sandvik’s past ROCE against its past performance, but the future is arguably more important. If you’d like to see what analysts are forecasting for the future, you should check out our free report for Sandvik.
What can we say about Sandvik’s ROCE trend?
Investors would be delighted with what happens at Sandvik. Over the past five years, returns on capital employed have increased substantially to 19%. Basically the business is making more per dollar of capital invested and on top of that 26% more capital is also being used now. This may indicate that there are plenty of opportunities to invest capital in-house and at ever higher rates, a common combination among multi-baggers.
The key to take away
In summary, it’s great to see that Sandvik 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 128% total return over the past five years tells us that investors are expecting more good things to come in the future. In light of this, we think it’s worth taking this title further because if Sandvik manages to keep these trends going, it could have a bright future ahead of it.
One more thing to note, we have identified 1 warning sign with Sandvik and understand that this should be part of your investment process.
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