Why We Like The Returns At Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna (WSE:KPD)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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, the ROCE of Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna (WSE:KPD) looks great, so lets see what the trend can tell us.

Understanding 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)

0.37 = zł63m ÷ (zł235m - zł66m) (Based on the trailing twelve months to March 2022).

So, Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna has an ROCE of 37%. In absolute terms that's a great return and it's even better than the Forestry industry average of 11%.

Check out 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 want to delve into the historical earnings, revenue and cash flow of Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 37%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 75%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna's ROCE

All in all, it's terrific to see that Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna does have some risks, we noticed 3 warning signs (and 1 which is significant) we think you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.