Returns On Capital At Polski Koncern Naftowy ORLEN Spólka Akcyjna (WSE:PKN) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, the ROCE of Polski Koncern Naftowy ORLEN Spólka Akcyjna (WSE:PKN) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Polski Koncern Naftowy ORLEN Spólka Akcyjna is:

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

0.17 = zł13b ÷ (zł107b - zł30b) (Based on the trailing twelve months to December 2021).

Therefore, Polski Koncern Naftowy ORLEN Spólka Akcyjna has an ROCE of 17%. By itself that's a normal return on capital and it's in line with the industry's average returns of 17%.

View 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, you can check out the forecasts from the analysts covering Polski Koncern Naftowy ORLEN Spólka Akcyjna here for free.

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 17% for the last five years, and the capital employed within the business has risen 96% in that time. 17% is a pretty standard return, and it provides some comfort knowing that Polski Koncern Naftowy ORLEN Spólka Akcyjna has consistently earned this amount. 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.

What We Can Learn From Polski Koncern Naftowy ORLEN Spólka Akcyjna's ROCE

To sum it up, Polski Koncern Naftowy ORLEN Spólka Akcyjna has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 15%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One final note, you should learn about the 2 warning signs we've spotted with Polski Koncern Naftowy ORLEN Spólka Akcyjna (including 1 which can't be ignored) .

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.

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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.