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

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Pozbud T&R Spolka Akcyjna (WSE:POZ) looks quite promising in regards to its trends of return on capital.

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. 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)

0.11 = zł35m ÷ (zł506m - zł176m) (Based on the trailing twelve months to June 2021).

Thus, Pozbud T&R Spolka Akcyjna has an ROCE of 11%. In isolation, that's a pretty standard return but against the Building industry average of 14%, it's not as good.

View our latest analysis for Pozbud T&R Spolka Akcyjna

Above you can see how the current ROCE for Pozbud T&R Spolka Akcyjna compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Pozbud T&R Spolka Akcyjna.

What The Trend Of ROCE Can Tell Us

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 11%. The amount of capital employed has increased too, by 36%. 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. Essentially the business now has suppliers or short-term creditors funding about 35% of its operations, which isn't ideal. 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.

The Key Takeaway

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. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 43% return over the last five years. In light of that, we think it's worth looking further into this stock because if Pozbud T&R Spolka Akcyjna can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Pozbud T&R Spolka Akcyjna, we've discovered 2 warning signs that you should be aware of.

While Pozbud T&R Spolka Akcyjna isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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