Should We Be Excited About The Trends Of Returns At Thrace Plastics Holding and Commercial (ATH:PLAT)?

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Thrace Plastics Holding and Commercial (ATH:PLAT) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Thrace Plastics Holding and Commercial is:

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

0.065 = €14m ÷ (€333m - €114m) (Based on the trailing twelve months to March 2020).

Therefore, Thrace Plastics Holding and Commercial has an ROCE of 6.5%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 8.7%.

View our latest analysis for Thrace Plastics Holding and Commercial

Above you can see how the current ROCE for Thrace Plastics Holding and Commercial compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

In terms of Thrace Plastics Holding and Commercial's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.5% from 9.8% five years ago. However it looks like Thrace Plastics Holding and Commercial might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. 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 Key Takeaway

In summary, Thrace Plastics Holding and Commercial is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And with the stock having returned a mere 32% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a final note, we've found 5 warning signs for Thrace Plastics Holding and Commercial that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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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