Will Grodno Spólka Akcyjna (WSE:GRN) Become A Multi-Bagger?

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. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. 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.

Return On Capital Employed (ROCE): What is it?

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 Grodno Spólka Akcyjna, this is the formula:

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

0.22 = zł27m ÷ (zł315m - zł193m) (Based on the trailing twelve months to September 2020).

Thus, Grodno Spólka Akcyjna has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 9.9%.

Check out our latest analysis for Grodno Spólka Akcyjna

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 Grodno Spólka Akcyjna's past further, check out this free graph of past earnings, revenue and cash flow.

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

The trends we've noticed at Grodno Spólka Akcyjna are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 22%. The amount of capital employed has increased too, by 103%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Grodno Spólka Akcyjna's ROCE

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 a remarkable 203% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

Grodno Spólka Akcyjna does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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