Balticon (WSE:BLT) Is Experiencing Growth In Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Balticon's (WSE:BLT) returns on capital, so let's have a look.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Balticon:

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

0.17 = zł10m ÷ (zł94m - zł33m) (Based on the trailing twelve months to December 2020).

Therefore, Balticon has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 13% it's much better.

Check out our latest analysis for Balticon

Historical performance is a great place to start when researching a stock so above you can see the gauge for Balticon's ROCE against it's prior returns. If you'd like to look at how Balticon has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Balticon's ROCE Trending?

The trends we've noticed at Balticon are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 17%. The amount of capital employed has increased too, by 39%. So we're very much inspired by what we're seeing at Balticon thanks to its ability to profitably reinvest capital.

The Bottom Line

To sum it up, Balticon has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 63% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing to note, we've identified 2 warning signs with Balticon and understanding these should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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