Under The Bonnet, Novita's (WSE:NVT) Returns Look Impressive

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of Novita (WSE:NVT) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Novita, this is the formula:

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

0.24 = zł37m ÷ (zł197m - zł43m) (Based on the trailing twelve months to September 2020).

Thus, Novita has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

See our latest analysis for Novita

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

What Does the ROCE Trend For Novita Tell Us?

The trends we've noticed at Novita are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 24%. The amount of capital employed has increased too, by 91%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Novita's ROCE

All in all, it's terrific to see that Novita is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 216% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 2 warning signs facing Novita that you might find interesting.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

If you’re looking to trade Novita, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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