Should You Be Impressed By Gielda Praw Majatkowych Vindexus Spolka Akcyjna's (WSE:VIN) Returns on Capital?

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. In light of that, when we looked at Gielda Praw Majatkowych Vindexus Spolka Akcyjna (WSE:VIN) and its ROCE trend, we weren't exactly thrilled.

Understanding 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 Gielda Praw Majatkowych Vindexus Spolka Akcyjna is:

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

0.049 = zł13m ÷ (zł291m - zł27m) (Based on the trailing twelve months to September 2020).

Therefore, Gielda Praw Majatkowych Vindexus Spolka Akcyjna has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 13%.

Check out our latest analysis for Gielda Praw Majatkowych Vindexus Spolka Akcyjna

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're interested in investigating Gielda Praw Majatkowych Vindexus Spolka Akcyjna's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

When we looked at the ROCE trend at Gielda Praw Majatkowych Vindexus Spolka Akcyjna, we didn't gain much confidence. Around five years ago the returns on capital were 13%, but since then they've fallen to 4.9%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Gielda Praw Majatkowych Vindexus Spolka Akcyjna's ROCE

Bringing it all together, while we're somewhat encouraged by Gielda Praw Majatkowych Vindexus Spolka Akcyjna's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 10% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Gielda Praw Majatkowych Vindexus Spolka Akcyjna has the makings of a multi-bagger.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Gielda Praw Majatkowych Vindexus Spolka Akcyjna (of which 2 shouldn't be ignored!) that you should know about.

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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