Will The ROCE Trend At Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna (WSE:KPD) Continue?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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?

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 Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna is:

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

0.037 = zł4.3m ÷ (zł168m - zł51m) (Based on the trailing twelve months to June 2020).

Therefore, Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Forestry industry average of 6.8%.

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'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 3.7%. The amount of capital employed has increased too, by 37%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna's ROCE

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. Considering the stock has delivered 14% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

On a separate note, we've found 3 warning signs for Koszalinskie Przedsiebiorstwo Przemyslu Drzewnego Spólka Akcyjna you'll probably want to know about.

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. 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.
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