Returns At B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 (AMS:PORF) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 (AMS:PORF) and its trend of ROCE, we really liked what we saw.

Understanding 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. The formula for this calculation on B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 is:

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

0.022 = €703k ÷ (€35m - €2.8m) (Based on the trailing twelve months to December 2021).

Thus, B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 has an ROCE of 2.2%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 12%.

Check out our latest analysis for B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 2.2% on its capital. Not only that, but the company is utilizing 175% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 7.9%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. 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...

To the delight of most shareholders, B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 has now broken into profitability. Since the stock has only returned 38% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing: We've identified 2 warning signs with B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 (at least 1 which is significant) , and understanding them would certainly be useful.

While B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 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.