There Are Reasons To Feel Uneasy About Sanok Rubber Company Spólka Akcyjna's (WSE:SNK) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Sanok Rubber Company Spólka Akcyjna (WSE:SNK), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. To calculate this metric for Sanok Rubber Company Spólka Akcyjna, this is the formula:

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

0.069 = zł46m ÷ (zł979m - zł311m) (Based on the trailing twelve months to September 2021).

So, Sanok Rubber Company Spólka Akcyjna has an ROCE of 6.9%. In absolute terms, that's a low return and it also under-performs the Auto Components industry average of 9.6%.

See our latest analysis for Sanok Rubber Company Spólka Akcyjna

In the above chart we have measured Sanok Rubber Company Spólka Akcyjna's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Sanok Rubber Company Spólka Akcyjna.

The Trend Of ROCE

In terms of Sanok Rubber Company Spólka Akcyjna's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.9% from 27% five years ago. 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 Sanok Rubber Company Spólka Akcyjna's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Sanok Rubber Company Spólka Akcyjna is reinvesting for growth and has higher sales as a result. And there could be an opportunity here if other metrics look good too, because the stock has declined 67% in the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing, we've spotted 2 warning signs facing Sanok Rubber Company Spólka Akcyjna that you might find interesting.

While Sanok Rubber Company Spólka Akcyjna 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.