Is Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna (WSE:KPD) A Future Multi-bagger?

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. So when we looked at Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna (WSE:KPD) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna is:

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

0.024 = zł2.8m ÷ (zł163m - zł46m) (Based on the trailing twelve months to September 2020).

So, Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Forestry industry average of 5.3%.

See our latest analysis for Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna

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'd like to look at how Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 2.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 38% 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 Bottom Line

In summary, it's great to see that Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 42% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 2 warning signs facing Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna that you might find interesting.

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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