We Like These Underlying Return On Capital Trends At Pozbud T&R Spolka Akcyjna (WSE:POZ)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Pozbud T&R Spolka Akcyjna's (WSE:POZ) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Pozbud T&R Spolka Akcyjna is:

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

0.14 = zł46m ÷ (zł496m - zł175m) (Based on the trailing twelve months to March 2021).

Therefore, Pozbud T&R Spolka Akcyjna has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Building industry average of 15%.

Check out our latest analysis for Pozbud T&R Spolka Akcyjna

Historical performance is a great place to start when researching a stock so above you can see the gauge for Pozbud T&R Spolka Akcyjna's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Pozbud T&R Spolka Akcyjna, check out these free graphs here.

The Trend Of ROCE

The trends we've noticed at Pozbud T&R Spolka Akcyjna are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 14%. The amount of capital employed has increased too, by 33%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 35% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

Our Take On Pozbud T&R Spolka Akcyjna's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Pozbud T&R Spolka Akcyjna has. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 11% to shareholders. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing to note, we've identified 1 warning sign with Pozbud T&R Spolka Akcyjna and understanding it should be part of your investment process.

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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