Returns On Capital Are Showing Encouraging Signs At Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP (WSE:KMP)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP (WSE:KMP) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP is:

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

0.083 = zł7.4m ÷ (zł111m - zł22m) (Based on the trailing twelve months to September 2023).

Therefore, Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP has an ROCE of 8.3%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 12%.

View our latest analysis for Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. 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 The Trend Of ROCE Can Tell Us

Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 367% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

To bring it all together, Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP has done well to increase the returns it's generating from its capital employed. And a remarkable 260% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP can keep these trends up, it could have a bright future ahead.

If you want to continue researching Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Przedsiebiorstwo Produkcyjno - Handlowe KOMPAP 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.