KGHM Polska Miedz's (WSE:KGH) Returns On Capital Are Heading Higher

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at KGHM Polska Miedz (WSE:KGH) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for KGHM Polska Miedz, this is the formula:

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

0.14 = zł5.4b ÷ (zł48b - zł9.5b) (Based on the trailing twelve months to December 2021).

So, KGHM Polska Miedz has an ROCE of 14%. In absolute terms, that's a pretty standard return but compared to the Metals and Mining industry average it falls behind.

See our latest analysis for KGHM Polska Miedz

Above you can see how the current ROCE for KGHM Polska Miedz compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for KGHM Polska Miedz.

What Does the ROCE Trend For KGHM Polska Miedz Tell Us?

We like the trends that we're seeing from KGHM Polska Miedz. The data shows that returns on capital have increased substantially over the last five years to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 40% 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.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what KGHM Polska Miedz has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 43% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Like most companies, KGHM Polska Miedz does come with some risks, and we've found 2 warning signs that you should be aware of.

While KGHM Polska Miedz isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.