Przedsiebiorstwo Hydrauliki Silowej HYDROTOR (WSE:HDR) Will Want To Turn Around Its Return Trends

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Przedsiebiorstwo Hydrauliki Silowej HYDROTOR (WSE:HDR) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Przedsiebiorstwo Hydrauliki Silowej HYDROTOR, this is the formula:

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

0.063 = zł8.8m ÷ (zł178m - zł38m) (Based on the trailing twelve months to December 2021).

Thus, Przedsiebiorstwo Hydrauliki Silowej HYDROTOR has an ROCE of 6.3%. On its own, that's a low figure but it's around the 7.7% average generated by the Machinery industry.

View our latest analysis for Przedsiebiorstwo Hydrauliki Silowej HYDROTOR

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 want to delve into the historical earnings, revenue and cash flow of Przedsiebiorstwo Hydrauliki Silowej HYDROTOR, check out these free graphs here.

The Trend Of ROCE

When we looked at the ROCE trend at Przedsiebiorstwo Hydrauliki Silowej HYDROTOR, we didn't gain much confidence. To be more specific, ROCE has fallen from 8.5% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Key Takeaway

While returns have fallen for Przedsiebiorstwo Hydrauliki Silowej HYDROTOR in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 36% over the last five years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

One more thing: We've identified 3 warning signs with Przedsiebiorstwo Hydrauliki Silowej HYDROTOR (at least 1 which is a bit concerning) , and understanding them would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.