Should You Be Impressed By B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653's (AMS:PORF) Returns on Capital?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Although, when we looked at B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 (AMS:PORF), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653:

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

0.052 = €1.5m ÷ (€32m - €2.8m) (Based on the trailing twelve months to December 2019).

Thus, B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 has an ROCE of 5.2%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 8.2%.

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

Historical performance is a great place to start when researching a stock so above you can see the gauge for B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653's ROCE against it's prior returns. If you're interested in investigating B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653's past further, check out this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 in recent years. The company has employed 143% more capital in the last five years, and the returns on that capital have remained stable at 5.2%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 8.8% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line

In summary, B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653 has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know more about B.V. Delftsch Aardewerkfabriek De Porceleyne Fles Anno 1653, we've spotted 4 warning signs, and 2 of them make us uncomfortable.

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