Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna (WSE:KPD) Shareholders Will Want The ROCE Trajectory To Continue

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna's (WSE:KPD) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna, this is the formula:

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).

Thus, 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 9.2%.

View our latest analysis for Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna

Historical performance is a great place to start when researching a stock so above you can see the gauge for Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna's ROCE against it's prior returns. If you're interested in investigating Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna's past further, check out 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%. The amount of capital employed has increased too, by 38%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

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 with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna, we've spotted 4 warning signs, and 1 of them shouldn't be ignored.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.