Returns On Capital Are A Standout For Grodno Spólka Akcyjna (WSE:GRN)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Grodno Spólka Akcyjna's (WSE:GRN) look very promising so lets take a look.

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 Grodno Spólka Akcyjna is:

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

0.27 = zł45m ÷ (zł429m - zł263m) (Based on the trailing twelve months to December 2021).

Therefore, Grodno Spólka Akcyjna has an ROCE of 27%. In absolute terms that's a very respectable return and compared to the Trade Distributors industry average of 26% it's pretty much on par.

View our latest analysis for Grodno Spólka Akcyjna

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

What Does the ROCE Trend For Grodno Spólka Akcyjna Tell Us?

Investors would be pleased with what's happening at Grodno Spólka Akcyjna. Over the last five years, returns on capital employed have risen substantially to 27%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 121%. So we're very much inspired by what we're seeing at Grodno Spólka Akcyjna thanks to its ability to profitably reinvest capital.

On a separate but related note, it's important to know that Grodno Spólka Akcyjna has a current liabilities to total assets ratio of 61%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Grodno Spólka Akcyjna has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 76% return over the last five years. In light of that, we think it's worth looking further into this stock because if Grodno Spólka Akcyjna can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 3 warning signs facing Grodno Spólka Akcyjna that you might find interesting.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.