Why We Like The Returns At Krynica Vitamin (WSE:KVT)

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. And in light of that, the trends we're seeing at Krynica Vitamin's (WSE:KVT) look very promising so lets take a 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. To calculate this metric for Krynica Vitamin, this is the formula:

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

0.49 = zł69m ÷ (zł253m - zł111m) (Based on the trailing twelve months to September 2020).

Therefore, Krynica Vitamin has an ROCE of 49%. In absolute terms that's a great return and it's even better than the Beverage industry average of 9.0%.

View our latest analysis for Krynica Vitamin

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Krynica Vitamin, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Krynica Vitamin are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 49%. Basically the business is earning more per dollar of capital invested and in addition to that, 97% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that Krynica Vitamin has a current liabilities to total assets ratio of 44%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

All in all, it's terrific to see that Krynica Vitamin is reaping the rewards from prior investments and is growing its capital base. And a remarkable 184% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we've found 2 warning signs for Krynica Vitamin that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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