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

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. 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?

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. 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)

0.05 = Kn53m ÷ (Kn1.4b - Kn357m) (Based on the trailing twelve months to September 2021).

So, AD Plastik d.d has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 9.5%.

Check out our latest analysis for AD Plastik d.d

In the above chart we have measured AD Plastik d.d's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for AD Plastik d.d.

How Are Returns Trending?

There hasn't been much to report for AD Plastik d.d's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if AD Plastik d.d doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that AD Plastik d.d has been paying out a decent 56% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line

In summary, AD Plastik d.d isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 3.6% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

AD Plastik d.d does have some risks though, and we've spotted 3 warning signs for AD Plastik d.d that you might be interested in.

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. 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.