Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP (WSE:KMP) Has More To Do To Multiply In Value Going Forward

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Although, when we looked at Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP (WSE:KMP), it didn't seem to tick all of these boxes.

Understanding 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 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%. Even though it's in line with the industry average of 9.2%, it's still a low return by itself.

Check out 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 want to delve into the historical earnings, revenue and cash flow of Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP, check out these free graphs here.

What Does the ROCE Trend For Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP Tell Us?

There are better returns on capital out there than what we're seeing at Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP. The company has consistently earned 8.6% for the last five years, and the capital employed within the business has risen 22% in that time. 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 conclusion, Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP has been investing more capital into the business, but returns on that capital haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 166% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

One more thing: We've identified 3 warning signs with Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP (at least 1 which is a bit unpleasant) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.