Pekabex (WSE:PBX) Could Be Struggling To Allocate Capital

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Pekabex (WSE:PBX), it didn't seem to tick all of these boxes.

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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. Analysts use this formula to calculate it for Pekabex:

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

0.056 = zł42m ÷ (zł1.5b - zł751m) (Based on the trailing twelve months to June 2025).

Thus, Pekabex has an ROCE of 5.6%. Ultimately, that's a low return and it under-performs the Construction industry average of 9.6%.

Check out our latest analysis for Pekabex

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pekabex's ROCE against it's prior returns. If you'd like to look at how Pekabex has performed in the past in other metrics, you can view this free graph of Pekabex's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Pekabex's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 5.6% from 12% five years ago. 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.

On a side note, Pekabex's current liabilities have increased over the last five years to 50% of total assets, effectively distorting the ROCE to some degree. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. And with current liabilities at these levels, suppliers or short-term creditors are effectively funding a large part of the business, which can introduce some risks.

The Bottom Line On Pekabex's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Pekabex. These growth trends haven't led to growth returns though, since the stock has fallen 11% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One final note, you should learn about the 3 warning signs we've spotted with Pekabex (including 1 which doesn't sit too well with us) .

While Pekabex 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.

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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.