Grupa Kapitalowa IMMOBILE (WSE:GKI) Is Reinvesting At Lower Rates Of Return

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing 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.

Understanding 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. Analysts use this formula to calculate it for Grupa Kapitalowa IMMOBILE:

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

0.054 = zł31m ÷ (zł1.0b - zł448m) (Based on the trailing twelve months to September 2023).

Thus, Grupa Kapitalowa IMMOBILE has an ROCE of 5.4%. Ultimately, that's a low return and it under-performs the Industrials industry average of 6.9%.

View our latest analysis for Grupa Kapitalowa IMMOBILE

In the above chart we have measured Grupa Kapitalowa IMMOBILE's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Grupa Kapitalowa IMMOBILE for free.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Grupa Kapitalowa IMMOBILE, we didn't gain much confidence. Around five years ago the returns on capital were 9.0%, but since then they've fallen to 5.4%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 44%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 5.4%. And with current liabilities at these levels, suppliers or short-term creditors are effectively funding a large part of the business, which can introduce some risks.

What We Can Learn From Grupa Kapitalowa IMMOBILE's ROCE

To conclude, we've found that Grupa Kapitalowa IMMOBILE is reinvesting in the business, but returns have been falling. And with the stock having returned a mere 17% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Grupa Kapitalowa IMMOBILE (including 1 which can't be ignored) .

While Grupa Kapitalowa IMMOBILE may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.