Will the Promising Trends At ULMA Construccion Polska (WSE:ULM) Continue?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Speaking of which, we noticed some great changes in ULMA Construccion Polska's (WSE:ULM) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for ULMA Construccion Polska:

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

0.11 = zł39m ÷ (zł392m - zł37m) (Based on the trailing twelve months to September 2020).

Therefore, ULMA Construccion Polska has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 12% generated by the Construction industry.

See our latest analysis for ULMA Construccion Polska

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'd like to look at how ULMA Construccion Polska has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From ULMA Construccion Polska's ROCE Trend?

The trends we've noticed at ULMA Construccion Polska are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 23%. 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.

The Key Takeaway

In summary, it's great to see that ULMA Construccion Polska can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has only returned 1.1% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

If you want to continue researching ULMA Construccion Polska, you might be interested to know about the 2 warning signs that our analysis has discovered.

While ULMA Construccion Polska 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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