Some Investors May Be Worried About Lubelski Wegiel Bogdanka's (WSE:LWB) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Lubelski Wegiel Bogdanka (WSE:LWB), it didn't seem to tick all of these boxes.

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. Analysts use this formula to calculate it for Lubelski Wegiel Bogdanka:

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

0.039 = zł160m ÷ (zł4.5b - zł385m) (Based on the trailing twelve months to June 2021).

Therefore, Lubelski Wegiel Bogdanka has an ROCE of 3.9%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 5.4%.

See our latest analysis for Lubelski Wegiel Bogdanka

Above you can see how the current ROCE for Lubelski Wegiel Bogdanka compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Lubelski Wegiel Bogdanka's ROCE Trend?

In terms of Lubelski Wegiel Bogdanka's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.9% from 8.5% 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.

The Bottom Line On Lubelski Wegiel Bogdanka's ROCE

Bringing it all together, while we're somewhat encouraged by Lubelski Wegiel Bogdanka's reinvestment in its own business, we're aware that returns are shrinking. And in the last five years, the stock has given away 41% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd 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 shouldn't be ignored.

While Lubelski Wegiel Bogdanka may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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.

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