Here's What To Make Of Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP's (WSE:KMP) Decelerating Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. However, after investigating Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP (WSE:KMP), we don't think it's current trends fit the mold of a multi-bagger.

What is 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. Analysts use this formula to calculate it for Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP:

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

0.086 = zł7.4m ÷ (zł107m - zł21m) (Based on the trailing twelve months to September 2021).

Therefore, Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP has an ROCE of 8.6%. On its own, that's a low figure but it's around the 11% average generated by the Forestry industry.

View our latest analysis for Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP

Historical performance is a great place to start when researching a stock so above you can see the gauge for Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP's ROCE against it's prior returns. If you're interested in investigating Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP. Over the past five years, ROCE has remained relatively flat at around 8.6% and the business has deployed 22% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP's ROCE

In summary, Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP has simply been reinvesting capital and generating the same low rate of return as before. Although the market must be expecting these trends to improve because the stock has gained 97% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP (of which 1 doesn't sit too well with us!) that you should know about.

While Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP 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.