Here's What To Make Of AD Plastik d.d's (ZGSE:ADPL) Decelerating Rates Of Return

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at AD Plastik d.d (ZGSE:ADPL), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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 AD Plastik d.d:

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

0.064 = Kn70m ÷ (Kn1.5b - Kn404m) (Based on the trailing twelve months to June 2021).

So, AD Plastik d.d has an ROCE of 6.4%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 10%.

View our latest analysis for AD Plastik d.d

Above you can see how the current ROCE for AD Plastik d.d compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AD Plastik d.d.

The Trend Of ROCE

Things have been pretty stable at AD Plastik d.d, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at AD Plastik d.d in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

Our Take On AD Plastik d.d's ROCE

In a nutshell, AD Plastik d.d has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has gained an impressive 48% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing, we've spotted 4 warning signs facing AD Plastik d.d that you might find interesting.

While AD Plastik d.d may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.

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