We Like These Underlying Return On Capital Trends At Saponia d.d (ZGSE:SAPN)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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, Saponia d.d (ZGSE:SAPN) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for Saponia d.d:

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

0.034 = €2.9m ÷ (€112m - €26m) (Based on the trailing twelve months to September 2024).

Therefore, Saponia d.d has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Household Products industry average of 13%.

View our latest analysis for Saponia d.d

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

What The Trend Of ROCE Can Tell Us

Saponia d.d has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 3.4%, which is always encouraging. While returns have increased, the amount of capital employed by Saponia d.d has remained flat over the period. 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. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line On Saponia d.d's ROCE

To bring it all together, Saponia d.d has done well to increase the returns it's generating from its capital employed. And a remarkable 135% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Saponia d.d we've found 2 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While Saponia 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. 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.