Returns On Capital At Centrum Finansowe (WSE:CFS) Paint A Concerning Picture

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Centrum Finansowe (WSE:CFS), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Centrum Finansowe is:

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

0.18 = zł9.9m ÷ (zł59m - zł4.0m) (Based on the trailing twelve months to June 2022).

Thus, Centrum Finansowe has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 16% generated by the Commercial Services industry.

Check out our latest analysis for Centrum Finansowe

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

So How Is Centrum Finansowe's ROCE Trending?

When we looked at the ROCE trend at Centrum Finansowe, we didn't gain much confidence. Around five years ago the returns on capital were 36%, but since then they've fallen to 18%. However it looks like Centrum Finansowe might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

In Conclusion...

To conclude, we've found that Centrum Finansowe is reinvesting in the business, but returns have been falling. Since the stock has declined 13% over the last five years, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One final note, you should learn about the 5 warning signs we've spotted with Centrum Finansowe (including 2 which don't sit too well with us) .

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. 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.