Papoutsanis' (ATH:PAP) Returns On Capital Are Heading Higher

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Papoutsanis (ATH:PAP) so let's look a bit deeper.

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. The formula for this calculation on Papoutsanis is:

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

0.15 = €6.2m ÷ (€58m - €17m) (Based on the trailing twelve months to September 2021).

Thus, Papoutsanis has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Personal Products industry average of 9.8% it's much better.

View our latest analysis for Papoutsanis

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

What Does the ROCE Trend For Papoutsanis Tell Us?

We like the trends that we're seeing from Papoutsanis. Over the last five years, returns on capital employed have risen substantially to 15%. The amount of capital employed has increased too, by 53%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

To sum it up, Papoutsanis has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 701% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Papoutsanis can keep these trends up, it could have a bright future ahead.

Papoutsanis does have some risks though, and we've spotted 3 warning signs for Papoutsanis 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. 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.