Investors Should Be Encouraged By Kras d.d's (ZGSE:KRAS) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Kras d.d's (ZGSE:KRAS) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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 Kras d.d, this is the formula:

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

0.34 = Kn46m ÷ (Kn164m - Kn28m) (Based on the trailing twelve months to March 2023).

So, Kras d.d has an ROCE of 34%. That's a fantastic return and not only that, it outpaces the average of 7.0% earned by companies in a similar industry.

See our latest analysis for Kras d.d

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kras d.d's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Kras d.d, check out these free graphs here.

The Trend Of ROCE

You'd find it hard not to be impressed with the ROCE trend at Kras d.d. We found that the returns on capital employed over the last five years have risen by 480%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Speaking of capital employed, the company is actually utilizing 84% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

On a related note, the company's ratio of current liabilities to total assets has decreased to 17%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

In Conclusion...

In the end, Kras d.d has proven it's capital allocation skills are good with those higher returns from less amount of capital. And with a respectable 68% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Kras d.d, we've discovered 2 warning signs that you should be aware of.

Kras 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.