The Return Trends At Polimex-Mostostal (WSE:PXM) Look Promising

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Polimex-Mostostal (WSE:PXM) 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 Polimex-Mostostal is:

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

0.089 = zł90m ÷ (zł1.9b - zł934m) (Based on the trailing twelve months to December 2020).

Therefore, Polimex-Mostostal has an ROCE of 8.9%. In absolute terms, that's a low return but it's around the Construction industry average of 11%.

View our latest analysis for Polimex-Mostostal

Historical performance is a great place to start when researching a stock so above you can see the gauge for Polimex-Mostostal's ROCE against it's prior returns. If you're interested in investigating Polimex-Mostostal's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

You'd find it hard not to be impressed with the ROCE trend at Polimex-Mostostal. We found that the returns on capital employed over the last five years have risen by 41%. The company is now earning zł0.09 per dollar of capital employed. In regards to capital employed, Polimex-Mostostal appears to been achieving more with less, since the business is using 20% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

Another thing to note, Polimex-Mostostal has a high ratio of current liabilities to total assets of 48%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

In summary, it's great to see that Polimex-Mostostal has been able to turn things around and earn higher returns on lower amounts of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 3.8% to shareholders. So with that in mind, we think the stock deserves further research.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

While Polimex-Mostostal 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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