Our Take On The Returns On Capital At Stara Planina Hold (BUL:5SR)

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Stara Planina Hold's (BUL:5SR) trend of ROCE, we liked what we saw.

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 Stara Planina Hold, this is the formula:

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

0.11 = лв22m ÷ (лв226m - лв33m) (Based on the trailing twelve months to September 2020).

So, Stara Planina Hold has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.6% generated by the Machinery industry.

View our latest analysis for Stara Planina Hold

Historical performance is a great place to start when researching a stock so above you can see the gauge for Stara Planina Hold's ROCE against it's prior returns. If you'd like to look at how Stara Planina Hold has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 11% for the last five years, and the capital employed within the business has risen 22% in that time. 11% is a pretty standard return, and it provides some comfort knowing that Stara Planina Hold has consistently earned this amount. 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.

What We Can Learn From Stara Planina Hold's ROCE

In the end, Stara Planina Hold has proven its ability to adequately reinvest capital at good rates of return. And the stock has followed suit returning a meaningful 72% to shareholders over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing: We've identified 2 warning signs with Stara Planina Hold (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

While Stara Planina Hold 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. 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.
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