Returns On Capital Are Showing Encouraging Signs At Elkop (WSE:EKP)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Elkop (WSE:EKP) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

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 Elkop is:

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

0.025 = zł3.5m ÷ (zł143m - zł5.1m) (Based on the trailing twelve months to March 2024).

Therefore, Elkop has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 16%.

Check out our latest analysis for Elkop

Historical performance is a great place to start when researching a stock so above you can see the gauge for Elkop's ROCE against it's prior returns. If you're interested in investigating Elkop's past further, check out this free graph covering Elkop's past earnings, revenue and cash flow.

So How Is Elkop's ROCE Trending?

The fact that Elkop is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.5% on its capital. Not only that, but the company is utilizing 48% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

Overall, Elkop gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And a remarkable 276% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

Elkop does have some risks, we noticed 4 warning signs (and 1 which is potentially serious) we think you should know about.

While Elkop 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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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com