IZOBLOK (WSE:IZB) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at IZOBLOK (WSE:IZB) so let's look a bit deeper.

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. Analysts use this formula to calculate it for IZOBLOK:

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

0.14 = zł17m ÷ (zł209m - zł84m) (Based on the trailing twelve months to October 2023).

So, IZOBLOK has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 13% generated by the Chemicals industry.

View our latest analysis for IZOBLOK

Historical performance is a great place to start when researching a stock so above you can see the gauge for IZOBLOK's ROCE against it's prior returns. If you'd like to look at how IZOBLOK has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From IZOBLOK's ROCE Trend?

We're pretty happy with how the ROCE has been trending at IZOBLOK. The data shows that returns on capital have increased by 168% over the trailing five years. The company is now earning zł0.1 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 25% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 40% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

Our Take On IZOBLOK's ROCE

In a nutshell, we're pleased to see that IZOBLOK has been able to generate higher returns from less capital. And with a respectable 73% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. 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.

One more thing: We've identified 4 warning signs with IZOBLOK (at least 1 which is potentially serious) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.