Compremum (WSE:CPR) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Compremum's (WSE:CPR) returns on capital, so let's have a look.

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. To calculate this metric for Compremum, this is the formula:

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

0.087 = zł33m ÷ (zł552m - zł179m) (Based on the trailing twelve months to September 2022).

Therefore, Compremum has an ROCE of 8.7%. Ultimately, that's a low return and it under-performs the Building industry average of 16%.

View our latest analysis for Compremum

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

SWOT Analysis for Compremum

So How Is Compremum's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.7%. Basically the business is earning more per dollar of capital invested and in addition to that, 56% more capital is being employed now too. So we're very much inspired by what we're seeing at Compremum thanks to its ability to profitably reinvest capital.

What We Can Learn From Compremum's ROCE

To sum it up, Compremum has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 37% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 3 warning signs for Compremum (1 doesn't sit too well with us) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.