Lubelski Wegiel Bogdanka (WSE:LWB) Is Reinvesting At Lower Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Having said that, from a first glance at Lubelski Wegiel Bogdanka (WSE:LWB) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is 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 Lubelski Wegiel Bogdanka is:

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

0.027 = zł110m ÷ (zł4.4b - zł385m) (Based on the trailing twelve months to March 2021).

So, Lubelski Wegiel Bogdanka has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 5.3%.

Check out our latest analysis for Lubelski Wegiel Bogdanka

In the above chart we have measured Lubelski Wegiel Bogdanka's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Lubelski Wegiel Bogdanka here for free.

The Trend Of ROCE

On the surface, the trend of ROCE at Lubelski Wegiel Bogdanka doesn't inspire confidence. Over the last five years, returns on capital have decreased to 2.7% from 9.8% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Lubelski Wegiel Bogdanka's ROCE

To conclude, we've found that Lubelski Wegiel Bogdanka is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 19% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you'd like to know more about Lubelski Wegiel Bogdanka, we've spotted 2 warning signs, and 1 of them is significant.

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