Koncar - distributivni i specijalni transformatori d.d (ZGSE:KODT) Is Investing Its Capital With Increasing Efficiency

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Koncar - distributivni i specijalni transformatori d.d's (ZGSE:KODT) returns on capital, so let's have a look.

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. To calculate this metric for Koncar - distributivni i specijalni transformatori d.d, this is the formula:

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

0.40 = €69m ÷ (€313m - €140m) (Based on the trailing twelve months to December 2023).

So, Koncar - distributivni i specijalni transformatori d.d has an ROCE of 40%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

See our latest analysis for Koncar - distributivni i specijalni transformatori d.d

In the above chart we have measured Koncar - distributivni i specijalni transformatori 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 analyst report for Koncar - distributivni i specijalni transformatori d.d .

How Are Returns Trending?

Investors would be pleased with what's happening at Koncar - distributivni i specijalni transformatori d.d. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 40%. The amount of capital employed has increased too, by 170%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a separate but related note, it's important to know that Koncar - distributivni i specijalni transformatori d.d has a current liabilities to total assets ratio of 45%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Koncar - distributivni i specijalni transformatori d.d's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Koncar - distributivni i specijalni transformatori d.d has. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Koncar - distributivni i specijalni transformatori d.d can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Koncar - distributivni i specijalni transformatori d.d, we've discovered 1 warning sign that you should be aware of.

Koncar - distributivni i specijalni transformatori d.d is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.