The Return Trends At PGF Polska Grupa Fotowoltaiczna (WSE:PGV) Look Promising

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at PGF Polska Grupa Fotowoltaiczna (WSE:PGV) and its trend of ROCE, we really liked what we saw.

What Is 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. To calculate this metric for PGF Polska Grupa Fotowoltaiczna, this is the formula:

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

0.061 = zł10m ÷ (zł210m - zł37m) (Based on the trailing twelve months to September 2023).

So, PGF Polska Grupa Fotowoltaiczna has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the Machinery industry average of 9.8%.

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 , check out these free graphs detailing revenue and cash flow performance of PGF Polska Grupa Fotowoltaiczna.

What Does the ROCE Trend For PGF Polska Grupa Fotowoltaiczna 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. About five years ago the company was generating losses but things have turned around because it's now earning 6.1% on its capital. Not only that, but the company is utilizing 349% more capital than before, but that's to be expected from a company 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 18% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On PGF Polska Grupa Fotowoltaiczna's ROCE

To the delight of most shareholders, PGF Polska Grupa Fotowoltaiczna has now broken into profitability. And a remarkable 422% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with PGF Polska Grupa Fotowoltaiczna (at least 1 which is concerning) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.