Investors Should Be Encouraged By Lubawa's (WSE:LBW) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. And in light of that, the trends we're seeing at Lubawa's (WSE:LBW) look very promising so lets take a look.

We've discovered 1 warning sign about Lubawa. View them for free.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Lubawa:

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

0.30 = zł138m ÷ (zł583m - zł116m) (Based on the trailing twelve months to September 2024).

Thus, Lubawa has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Aerospace & Defense industry average of 12%.

Check out our latest analysis for Lubawa

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 Lubawa's past further, check out this free graph covering Lubawa's past earnings, revenue and cash flow.

What Does the ROCE Trend For Lubawa Tell Us?

The trends we've noticed at Lubawa are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 30%. 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 62%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

In summary, it's great to see that Lubawa can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 1,036% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 1 warning sign for Lubawa that we think you should be aware of.

Lubawa is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.