AC Spólka Akcyjna's (WSE:ACG) Returns On Capital Not Reflecting Well On The Business

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, while the ROCE is currently high for AC Spólka Akcyjna (WSE:ACG), we aren't jumping out of our chairs because returns are decreasing.

What Is Return On Capital Employed (ROCE)?

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 AC Spólka Akcyjna:

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

0.21 = zł31m ÷ (zł213m - zł67m) (Based on the trailing twelve months to June 2022).

Thus, AC Spólka Akcyjna has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 6.6% earned by companies in a similar industry.

View our latest analysis for AC Spólka Akcyjna

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

The Trend Of ROCE

When we looked at the ROCE trend at AC Spólka Akcyjna, we didn't gain much confidence. Historically returns on capital were even higher at 41%, but they have dropped over the last five 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.

What We Can Learn From AC Spólka Akcyjna's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for AC Spólka Akcyjna. These growth trends haven't led to growth returns though, since the stock has fallen 16% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you'd like to know more about AC Spólka Akcyjna, we've spotted 3 warning signs, and 1 of them can't be ignored.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.