Here's What To Make Of Koncar - Elektroindustrija d.d's (ZGSE:KOEI) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Koncar - Elektroindustrija d.d (ZGSE:KOEI) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Koncar - Elektroindustrija d.d, this is the formula:

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

0.038 = Kn108m ÷ (Kn3.8b - Kn999m) (Based on the trailing twelve months to September 2020).

Therefore, Koncar - Elektroindustrija d.d has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Electrical industry average of 10%.

View our latest analysis for Koncar - Elektroindustrija d.d

Above you can see how the current ROCE for Koncar - Elektroindustrija 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, you can check out the forecasts from the analysts covering Koncar - Elektroindustrija d.d here for free.

How Are Returns Trending?

Over the past five years, Koncar - Elektroindustrija d.d's 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 Koncar - Elektroindustrija d.d to be a multi-bagger going forward. With fewer investment opportunities, it makes sense that Koncar - Elektroindustrija d.d has been paying out a decent 45% of its earnings to shareholders. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

Our Take On Koncar - Elektroindustrija d.d's ROCE

In summary, Koncar - Elektroindustrija d.d isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly then, the total return to shareholders over the last five years has been flat. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Koncar - Elektroindustrija d.d (including 1 which is is significant) .

While Koncar - Elektroindustrija 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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