Uzin Utz (ETR:UZU) Might Have The Makings Of A Multi-Bagger

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Uzin Utz's (ETR:UZU) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Uzin Utz:

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

0.12 = €29m ÷ (€330m - €84m) (Based on the trailing twelve months to June 2020).

So, Uzin Utz has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 6.6% it's much better.

See our latest analysis for Uzin Utz

In the above chart we have measured Uzin Utz's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Uzin Utz's ROCE Trending?

Investors would be pleased with what's happening at Uzin Utz. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 42%. So we're very much inspired by what we're seeing at Uzin Utz thanks to its ability to profitably reinvest capital.

What We Can Learn From Uzin Utz's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Uzin Utz has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 56% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Uzin Utz does have some risks though, and we've spotted 2 warning signs for Uzin Utz that you might be interested in.

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. 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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