Here's What To Make Of Stara Planina Hold's (BUL:SPH) Decelerating Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. That's why when we briefly looked at Stara Planina Hold's (BUL:SPH) ROCE trend, we were pretty happy with 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)

0.13 = лв25m ÷ (лв233m - лв34m) (Based on the trailing twelve months to December 2020).

So, Stara Planina Hold has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 8.4% it's much better.

Check out 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're interested in investigating Stara Planina Hold's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Stara Planina Hold's ROCE Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 13% for the last five years, and the capital employed within the business has risen 24% in that time. Since 13% 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.

The Bottom Line

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 95% to shareholders over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One final note, you should learn about the 2 warning signs we've spotted with Stara Planina Hold (including 1 which is concerning) .

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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