Adatex Deweloper (WSE:ADX) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Adatex Deweloper's (WSE:ADX) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Adatex Deweloper is:

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

0.014 = zł3.0m ÷ (zł320m - zł102m) (Based on the trailing twelve months to March 2023).

Thus, Adatex Deweloper has an ROCE of 1.4%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 11%.

View our latest analysis for Adatex Deweloper

Historical performance is a great place to start when researching a stock so above you can see the gauge for Adatex Deweloper's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Adatex Deweloper, check out these free graphs here.

What Does the ROCE Trend For Adatex Deweloper Tell Us?

Adatex Deweloper has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 1.4% which is a sight for sore eyes. Not only that, but the company is utilizing 21,772% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 32%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

In Conclusion...

Overall, Adatex Deweloper gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Although the company may be facing some issues elsewhere since the stock has plunged 82% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

Adatex Deweloper does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are concerning...

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.