There Are Reasons To Feel Uneasy About CIAK Grupa d.d's (ZGSE:CIAK) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think CIAK Grupa d.d (ZGSE:CIAK) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. Analysts use this formula to calculate it for CIAK Grupa d.d:

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

0.073 = Kn56m ÷ (Kn1.2b - Kn477m) (Based on the trailing twelve months to December 2021).

So, CIAK Grupa d.d has an ROCE of 7.3%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 13%.

View our latest analysis for CIAK Grupa d.d

Historical performance is a great place to start when researching a stock so above you can see the gauge for CIAK Grupa d.d's ROCE against it's prior returns. If you're interested in investigating CIAK Grupa d.d's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From CIAK Grupa d.d's ROCE Trend?

In terms of CIAK Grupa d.d's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 14% over the last four years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

While returns have fallen for CIAK Grupa d.d in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These trends don't appear to have influenced returns though, because the total return from the stock has been mostly flat over the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

On a separate note, we've found 1 warning sign for CIAK Grupa d.d you'll probably want to know about.

While CIAK Grupa 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.