We Like These Underlying Trends At AD Plastik d.d (ZGSE:ADPL)

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. With that in mind, we've noticed some promising trends at AD Plastik d.d (ZGSE:ADPL) so let's look a bit deeper.

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. 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)

0.062 = Kn66m ÷ (Kn1.5b - Kn451m) (Based on the trailing twelve months to September 2020).

Thus, AD Plastik d.d has an ROCE of 6.2%. Even though it's in line with the industry average of 6.2%, it's still a low return by itself.

View 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For AD Plastik d.d Tell Us?

AD Plastik d.d has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 162% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On AD Plastik d.d's ROCE

To bring it all together, AD Plastik d.d has done well to increase the returns it's generating from its capital employed. And a remarkable 108% 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 AD Plastik d.d can keep these trends up, it could have a bright future ahead.

If you want to continue researching AD Plastik d.d, you might be interested to know about the 2 warning signs that our analysis has discovered.

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.

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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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