Returns Are Gaining Momentum At PGF Polska Grupa Fotowoltaiczna (WSE:PGV)

Did you know there are some financial metrics that can provide clues of a potential 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, PGF Polska Grupa Fotowoltaiczna (WSE:PGV) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on PGF Polska Grupa Fotowoltaiczna is:

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

0.00041 = zł96k ÷ (zł240m - zł11m) (Based on the trailing twelve months to March 2021).

So, PGF Polska Grupa Fotowoltaiczna has an ROCE of 0.04%. Ultimately, that's a low return and it under-performs the Machinery industry average of 8.4%.

Check out our latest analysis for PGF Polska Grupa Fotowoltaiczna

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 PGF Polska Grupa Fotowoltaiczna, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We're delighted to see that PGF Polska Grupa Fotowoltaiczna is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 0.04% which is a sight for sore eyes. In addition to that, PGF Polska Grupa Fotowoltaiczna is employing 111% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, PGF Polska Grupa Fotowoltaiczna has decreased current liabilities to 4.6% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that PGF Polska Grupa Fotowoltaiczna has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

To the delight of most shareholders, PGF Polska Grupa Fotowoltaiczna has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

PGF Polska Grupa Fotowoltaiczna does have some risks, we noticed 3 warning signs (and 1 which is a bit concerning) we think you should know about.

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.

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.

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