Grupa Kapitalowa IMMOBILE (WSE:GKI) Has Some Way To Go To Become A Multi-Bagger

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Grupa Kapitalowa IMMOBILE (WSE:GKI) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Grupa Kapitalowa IMMOBILE is:

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

0.028 = zł15m ÷ (zł858m - zł323m) (Based on the trailing twelve months to September 2021).

Thus, Grupa Kapitalowa IMMOBILE has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Industrials industry average of 7.7%.

Check out our latest analysis for Grupa Kapitalowa IMMOBILE

Historical performance is a great place to start when researching a stock so above you can see the gauge for Grupa Kapitalowa IMMOBILE's ROCE against it's prior returns. If you'd like to look at how Grupa Kapitalowa IMMOBILE has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Grupa Kapitalowa IMMOBILE's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 2.8% and the business has deployed 144% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 38% of total assets, this reported ROCE would probably be less than2.8% because total capital employed would be higher.The 2.8% ROCE could be even lower if current liabilities weren't 38% of total assets, because the the formula would show a larger base of total capital employed. So while current liabilities isn't high right now, keep an eye out in case it increases further, because this can introduce some elements of risk.

What We Can Learn From Grupa Kapitalowa IMMOBILE's ROCE

Long story short, while Grupa Kapitalowa IMMOBILE has been reinvesting its capital, the returns that it's generating haven't increased. And in the last five years, the stock has given away 26% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One final note, you should learn about the 3 warning signs we've spotted with Grupa Kapitalowa IMMOBILE (including 2 which don't sit too well with us) .

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. 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.