Polski Koncern Naftowy ORLEN Spólka Akcyjna (WSE:PKN) Is Achieving High Returns On Its Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. And in light of that, the trends we're seeing at Polski Koncern Naftowy ORLEN Spólka Akcyjna's (WSE:PKN) look very promising so lets take a look.

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 Polski Koncern Naftowy ORLEN Spólka Akcyjna, this is the formula:

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

0.23 = zł26b ÷ (zł169b - zł58b) (Based on the trailing twelve months to September 2022).

Thus, Polski Koncern Naftowy ORLEN Spólka Akcyjna has an ROCE of 23%. On its own that's a fantastic return on capital, though it's the same as the Oil and Gas industry average of 23%.

See 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.

What Can We Tell From Polski Koncern Naftowy ORLEN Spólka Akcyjna's ROCE Trend?

Polski Koncern Naftowy ORLEN Spólka Akcyjna is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 23%. Basically the business is earning more per dollar of capital invested and in addition to that, 159% more capital is being employed now too. So we're very much inspired by what we're seeing at Polski Koncern Naftowy ORLEN Spólka Akcyjna thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, Polski Koncern Naftowy ORLEN Spólka Akcyjna has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Astute investors may have an opportunity here because the stock has declined 18% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Polski Koncern Naftowy ORLEN Spólka Akcyjna does come with some risks though, we found 4 warning signs in our investment analysis, and 3 of those are a bit unpleasant...

Polski Koncern Naftowy ORLEN Spólka Akcyjna is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.