We Think Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna (WSE:KPD) Might Have The DNA Of A Multi-Bagger

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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)

0.44 = zł82m ÷ (zł247m - zł61m) (Based on the trailing twelve months to June 2022).

Thus, Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna has an ROCE of 44%. In absolute terms that's a great return and it's even better than the Forestry industry average of 16%.

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'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.

What Does the ROCE Trend For Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna Tell Us?

The trends we've noticed at Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 44%. The amount of capital employed has increased too, by 89%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna has. Since the stock has returned a staggering 194% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 3 warning signs with Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.