Columbus Energy (WSE:CLC) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Columbus Energy (WSE:CLC) looks quite promising in regards to its trends of return on capital.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Columbus Energy:

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

0.0095 = zł3.7m ÷ (zł840m - zł452m) (Based on the trailing twelve months to December 2021).

Therefore, Columbus Energy has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Electrical industry average of 11%.

View our latest analysis for Columbus Energy

Historical performance is a great place to start when researching a stock so above you can see the gauge for Columbus Energy's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Columbus Energy, check out these free graphs here.

What Does the ROCE Trend For Columbus Energy Tell Us?

We're delighted to see that Columbus Energy is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 1.0% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Columbus Energy is utilizing 425% more capital than it was five years ago. 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.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 54% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Columbus Energy's ROCE

Long story short, we're delighted to see that Columbus Energy's reinvestment activities have paid off and the company is now profitable. And a remarkable 229% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with Columbus Energy (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

While Columbus Energy 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.