INA-Industrija nafte d.d (ZGSE:INA) Is Looking To Continue Growing Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at INA-Industrija nafte d.d (ZGSE:INA) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on INA-Industrija nafte d.d is:

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

0.0037 = Kn51m ÷ (Kn21b - Kn7.3b) (Based on the trailing twelve months to March 2021).

Therefore, INA-Industrija nafte d.d has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 5.6%.

View our latest analysis for INA-Industrija nafte d.d

Historical performance is a great place to start when researching a stock so above you can see the gauge for INA-Industrija nafte d.d's ROCE against it's prior returns. If you'd like to look at how INA-Industrija nafte d.d has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For INA-Industrija nafte d.d Tell Us?

We're delighted to see that INA-Industrija nafte d.d is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 0.4%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

As discussed above, INA-Industrija nafte d.d appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 30% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we've found 1 warning sign for INA-Industrija nafte d.d that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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