Shareholders Would Enjoy A Repeat Of INA-Industrija nafte d.d's (ZGSE:INA) Recent Growth In Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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 when we looked at the ROCE trend of INA-Industrija nafte d.d (ZGSE:INA) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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)

0.20 = Kn3.8b ÷ (Kn25b - Kn6.4b) (Based on the trailing twelve months to September 2022).

Therefore, INA-Industrija nafte d.d has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 15%.

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.

How Are Returns Trending?

INA-Industrija nafte d.d is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 20%. 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 29%. So we're very much inspired by what we're seeing at INA-Industrija nafte d.d thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, INA-Industrija nafte d.d has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 21% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we found 2 warning signs for INA-Industrija nafte d.d (1 is concerning) you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.