Why We Like The Returns At Jastrzebska Spólka Weglowa (WSE:JSW)

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. And in light of that, the trends we're seeing at Jastrzebska Spólka Weglowa's (WSE:JSW) look very promising so lets take a look.

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 Jastrzebska Spólka Weglowa:

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

0.45 = zł7.2b ÷ (zł22b - zł5.7b) (Based on the trailing twelve months to June 2022).

Thus, Jastrzebska Spólka Weglowa has an ROCE of 45%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 30%.

Check out the opportunities and risks within the PL Metals and Mining industry.

In the above chart we have measured Jastrzebska Spólka Weglowa'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 Jastrzebska Spólka Weglowa.

What Does the ROCE Trend For Jastrzebska Spólka Weglowa Tell Us?

The trends we've noticed at Jastrzebska Spólka Weglowa are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 45%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 57%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Jastrzebska Spólka Weglowa's ROCE

To sum it up, Jastrzebska Spólka Weglowa 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 56% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Jastrzebska Spólka Weglowa does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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.