There Are Reasons To Feel Uneasy About Port Flot-Burgas AD's (BUL:PFB) Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Although, when we looked at Port Flot-Burgas AD (BUL:PFB), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Port Flot-Burgas AD is:

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

0.00013 = лв6.0k ÷ (лв46m - лв609k) (Based on the trailing twelve months to September 2021).

So, Port Flot-Burgas AD has an ROCE of 0.01%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 8.3%.

View our latest analysis for Port Flot-Burgas AD

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

The Trend Of ROCE

In terms of Port Flot-Burgas AD's historical ROCE movements, the trend isn't fantastic. Over the last four years, returns on capital have decreased to 0.01% from 8.5% four years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Port Flot-Burgas AD's ROCE

Bringing it all together, while we're somewhat encouraged by Port Flot-Burgas AD's reinvestment in its own business, we're aware that returns are shrinking. Although the market must be expecting these trends to improve because the stock has gained 34% over the last year. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

One final note, you should learn about the 4 warning signs we've spotted with Port Flot-Burgas AD (including 2 which are a bit unpleasant) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.