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

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, INA-Industrija nafte d.d (ZGSE:INA) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for INA-Industrija nafte d.d, this is the formula:

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

0.12 = Kn2.1b ÷ (Kn24b - Kn6.8b) (Based on the trailing twelve months to March 2022).

Therefore, INA-Industrija nafte d.d has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 10% generated by the Oil and Gas industry.

See 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're interested in investigating INA-Industrija nafte d.d's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at INA-Industrija nafte d.d are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 12%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 23%. 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.

What We Can Learn From INA-Industrija nafte 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 INA-Industrija nafte d.d has. Since the stock has only returned 21% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing: We've identified 2 warning signs with INA-Industrija nafte d.d (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

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.