Poligrafici Printing (BIT:POPR) Could Be Struggling To Allocate Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at Poligrafici Printing (BIT:POPR) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

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 Poligrafici Printing is:

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

0.083 = €3.3m ÷ (€49m - €9.0m) (Based on the trailing twelve months to September 2023).

Therefore, Poligrafici Printing has an ROCE of 8.3%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 8.9%.

Check out our latest analysis for Poligrafici Printing

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

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Poligrafici Printing doesn't inspire confidence. To be more specific, ROCE has fallen from 12% over the last five years. However it looks like Poligrafici Printing might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

To conclude, we've found that Poligrafici Printing is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 26% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Poligrafici Printing has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Poligrafici Printing (of which 1 is a bit unpleasant!) that you should know about.

While Poligrafici Printing isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.