Home Sea food Grieg Seafood (OB:GSF) will want to reverse its comeback trends

Grieg Seafood (OB:GSF) will want to reverse its comeback trends

0

Finding a business that has the potential to grow significantly isn’t easy, but it is possible if we look at a few key financial metrics. Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. Although, when we looked Seafood Grieg (OB:GSF), it doesn’t seem to have checked all those boxes.

What is return on capital employed (ROCE)?

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. To calculate this metric for Grieg Seafood, here is the formula:

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

0.15 = kr1.7b ÷ (kr12b – kr1.3b) (Based on the last twelve months to March 2022).

So, Grieg Seafood has a ROCE of 15%. In itself, this is a standard yield, but it is much better than the 10% generated by the food industry.

See our latest review for Grieg Seafood

OB: GSF Return on Capital Employed August 3, 2022

In the chart above, we measured Grieg Seafood’s past ROCE against its past performance, but the future is arguably more important. If you want, you can check out analyst forecasts covering Grieg Seafood here for free.

What is the return trend?

In terms of Grieg Seafood’s historical ROCE movements, the trend is not fantastic. Over the past five years, capital returns have declined to 15% from 26% five years ago. Although, given that revenue and the amount of assets used in the business have increased, it could suggest that the business is investing in growth and that the additional capital has resulted in a short-term reduction in ROCE. If these investments prove successful, it can bode very well for long-term stock performance.

On a related note, Grieg Seafood reduced current liabilities to 11% of total assets. So we could tie some of that to the decline in ROCE. Additionally, it may reduce some aspects of risk to the business, as the business’s suppliers or short-term creditors now fund less of its operations. Some would argue that this reduces the company’s effectiveness in generating a return on investment, as it now finances more operations with its own money.

What we can learn from Grieg Seafood’s ROCE

Even though capital returns have fallen in the short term, we think it’s promising that both revenue and capital employed have increased for Grieg Seafood. And the stock has done incredibly well with a 148% return over the past five years, so long-term investors are no doubt pleased with this result. So if these growth trends continue, we would be optimistic about the stock going forward.

On a separate note, we found 1 warning sign for Grieg Seafood you will probably want to know more.

Although Grieg Seafood doesn’t currently generate the highest returns, we’ve compiled a list of companies that currently generate over 25% return on equity. look at this free list here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.