Polwax (WSE:PWX) Will Be Looking To Turn Around Its Returns

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Polwax (WSE:PWX), we weren't too hopeful.

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. The formula for this calculation on Polwax is:

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

0.099 = zł9.3m ÷ (zł137m - zł43m) (Based on the trailing twelve months to March 2021).

Thus, Polwax has an ROCE of 9.9%. On its own, that's a low figure but it's around the 8.5% average generated by the Chemicals industry.

View our latest analysis for Polwax

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 want to delve into the historical earnings, revenue and cash flow of Polwax, check out these free graphs here.

What Can We Tell From Polwax's ROCE Trend?

In terms of Polwax's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 35% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Polwax to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that Polwax is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 56% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Polwax does have some risks, we noticed 3 warning signs (and 2 which are significant) we think you should 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. 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.
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