Pipe Works L. Girakian Profil (ATH:PROFK) Is Looking To Continue Growing Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, Pipe Works L. Girakian Profil (ATH:PROFK) looks quite promising in regards to its trends of return on capital.

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 Pipe Works L. Girakian Profil is:

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

0.096 = €2.3m ÷ (€39m - €16m) (Based on the trailing twelve months to June 2022).

Therefore, Pipe Works L. Girakian Profil has an ROCE of 9.6%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 14%.

See our latest analysis for Pipe Works L. Girakian Profil

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pipe Works L. Girakian Profil's ROCE against it's prior returns. If you're interested in investigating Pipe Works L. Girakian Profil's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Pipe Works L. Girakian Profil is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 9.6% which is a sight for sore eyes. In addition to that, Pipe Works L. Girakian Profil is employing 70% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Pipe Works L. Girakian Profil has decreased current liabilities to 40% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line

Overall, Pipe Works L. Girakian Profil gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 5,365% 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 Pipe Works L. Girakian Profil can keep these trends up, it could have a bright future ahead.

Pipe Works L. Girakian Profil does have some risks, we noticed 4 warning signs (and 3 which are potentially serious) we think you should know about.

While Pipe Works L. Girakian Profil 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. 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.