Polski Koncern Naftowy ORLEN Spólka Akcyjna (WSE:PKN) Hasn't Managed To Accelerate Its Returns

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. That's why when we briefly looked at Polski Koncern Naftowy ORLEN Spólka Akcyjna's (WSE:PKN) ROCE trend, we were pretty happy with what we saw.

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

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. Analysts use this formula to calculate it for Polski Koncern Naftowy ORLEN Spólka Akcyjna:

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

0.18 = zł33b ÷ (zł273b - zł92b) (Based on the trailing twelve months to December 2022).

Therefore, Polski Koncern Naftowy ORLEN Spólka Akcyjna has an ROCE of 18%. In absolute terms, that's a pretty standard return but compared to the Oil and Gas industry average it falls behind.

Check out our latest analysis for Polski Koncern Naftowy ORLEN Spólka Akcyjna

In the above chart we have measured Polski Koncern Naftowy ORLEN Spólka Akcyjna's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Polski Koncern Naftowy ORLEN Spólka Akcyjna.

SWOT Analysis for Polski Koncern Naftowy ORLEN Spólka Akcyjna

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 308% in that time. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Polski Koncern Naftowy ORLEN Spólka Akcyjna's ROCE

In the end, Polski Koncern Naftowy ORLEN Spólka Akcyjna has proven its ability to adequately reinvest capital at good rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last five years. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

If you want to know some of the risks facing Polski Koncern Naftowy ORLEN Spólka Akcyjna we've found 4 warning signs (3 are a bit unpleasant!) that you should be aware of before investing here.

While Polski Koncern Naftowy ORLEN Spólka Akcyjna 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.

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

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.