Will Sanok Rubber Company Spólka Akcyjna (WSE:SNK) Multiply In Value Going Forward?

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Sanok Rubber Company Spólka Akcyjna (WSE:SNK) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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 Sanok Rubber Company Spólka Akcyjna:

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

0.055 = zł35m ÷ (zł986m - zł346m) (Based on the trailing twelve months to September 2020).

Thus, Sanok Rubber Company Spólka Akcyjna has an ROCE of 5.5%. On its own, that's a low figure but it's around the 6.2% average generated by the Auto Components industry.

See our latest analysis for Sanok Rubber Company Spólka Akcyjna

Above you can see how the current ROCE for Sanok Rubber Company Spólka Akcyjna compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Sanok Rubber Company Spólka Akcyjna's ROCE Trending?

When we looked at the ROCE trend at Sanok Rubber Company Spólka Akcyjna, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.5% from 26% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

What We Can Learn From Sanok Rubber Company Spólka Akcyjna's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Sanok Rubber Company Spólka Akcyjna have fallen, meanwhile the business is employing more capital than it was five years ago. It should come as no surprise then that the stock has fallen 56% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a final note, we've found 2 warning signs for Sanok Rubber Company Spólka Akcyjna that we think you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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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