Returns On Capital At Philippos Nakas (ATH:NAKAS) Have Hit The Brakes

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Philippos Nakas (ATH:NAKAS) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Philippos Nakas, this is the formula:

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

0.048 = €1.1m ÷ (€29m - €5.0m) (Based on the trailing twelve months to June 2022).

Thus, Philippos Nakas has an ROCE of 4.8%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 6.8%.

Check out our latest analysis for Philippos Nakas

Historical performance is a great place to start when researching a stock so above you can see the gauge for Philippos Nakas' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Philippos Nakas, check out these free graphs here.

The Trend Of ROCE

Over the past five years, Philippos Nakas' ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Philippos Nakas to be a multi-bagger going forward.

The Key Takeaway

In a nutshell, Philippos Nakas has been trudging along with the same returns from the same amount of capital over the last five years. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 143% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you want to continue researching Philippos Nakas, you might be interested to know about the 5 warning signs that our analysis has discovered.

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.