Will Grupa Kapitalowa IMMOBILE (WSE:GKI) Multiply In Value Going Forward?

Did you know there are some financial metrics that can provide clues of a potential 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. 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.

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 Grupa Kapitalowa IMMOBILE:

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

0.029 = zł13m ÷ (zł680m - zł241m) (Based on the trailing twelve months to September 2020).

Therefore, Grupa Kapitalowa IMMOBILE has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Industrials industry average of 5.4%.

Check out our latest analysis for Grupa Kapitalowa IMMOBILE

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Grupa Kapitalowa IMMOBILE's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Grupa Kapitalowa IMMOBILE Tell Us?

In terms of Grupa Kapitalowa IMMOBILE's historical ROCE trend, it doesn't exactly demand attention. The company has employed 81% more capital in the last five years, and the returns on that capital have remained stable at 2.9%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Another point to note, we noticed the company has increased current liabilities over the last five years. This is intriguing because if current liabilities hadn't increased to 35% of total assets, this reported ROCE would probably be less than2.9% because total capital employed would be higher.The 2.9% ROCE could be even lower if current liabilities weren't 35% 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.

Our Take On 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. Unsurprisingly then, the total return to shareholders over the last five years has been flat. 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.

On a final note, we found 3 warning signs for Grupa Kapitalowa IMMOBILE (2 are a bit unpleasant) you should be aware of.

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.

If you’re looking to trade Grupa Kapitalowa IMMOBILE, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.