Returns On Capital - An Important Metric For Pekabex (WSE:PBX)

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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Pekabex (WSE:PBX) looks quite promising in regards to its trends of return on capital.

Understanding 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. To calculate this metric for Pekabex, this is the formula:

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

0.14 = zł69m ÷ (zł806m - zł314m) (Based on the trailing twelve months to September 2020).

So, Pekabex has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 12% generated by the Construction industry.

See our latest analysis for Pekabex

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 Pekabex, check out these free graphs here.

What Can We Tell From Pekabex's ROCE Trend?

Pekabex is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 14%. 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 117%. So we're very much inspired by what we're seeing at Pekabex thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Pekabex has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 70% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Pekabex can keep these trends up, it could have a bright future ahead.

Like most companies, Pekabex does come with some risks, and we've found 1 warning sign that you should be aware of.

While Pekabex isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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