Grupa Kety (WSE:KTY) Is Investing Its Capital With Increasing Efficiency

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Grupa Kety's (WSE:KTY) 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. To calculate this metric for Grupa Kety, this is the formula:

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

0.25 = zł579m ÷ (zł3.1b - zł791m) (Based on the trailing twelve months to March 2021).

Thus, Grupa Kety has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 16%.

Check out our latest analysis for Grupa Kety

Above you can see how the current ROCE for Grupa Kety compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Grupa Kety.

What Can We Tell From Grupa Kety's ROCE Trend?

The trends we've noticed at Grupa Kety are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 25%. The amount of capital employed has increased too, by 53%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

What We Can Learn From Grupa Kety's ROCE

In summary, it's great to see that Grupa Kety 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 a remarkable 225% total return over the last five years tells us that investors are expecting more good things to come in the future. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you'd like to know about the risks facing Grupa Kety, we've discovered 2 warning signs that you should be aware of.

Grupa Kety is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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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