Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. With that in mind, we've noticed some promising trends at Zaklady Magnezytowe ROPCZYCE (WSE:RPC) so let's look a bit deeper.
What is Return On Capital Employed (ROCE)?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Zaklady Magnezytowe ROPCZYCE:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.078 = zł27m ÷ (zł462m - zł113m) (Based on the trailing twelve months to June 2020).
Thus, Zaklady Magnezytowe ROPCZYCE has an ROCE of 7.8%. Even though it's in line with the industry average of 7.8%, it's still a low return by itself.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Zaklady Magnezytowe ROPCZYCE's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Zaklady Magnezytowe ROPCZYCE, check out these free graphs here.
How Are Returns Trending?
Zaklady Magnezytowe ROPCZYCE is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 28% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
The Key Takeaway
To bring it all together, Zaklady Magnezytowe ROPCZYCE has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 23% 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.
One more thing, we've spotted 2 warning signs facing Zaklady Magnezytowe ROPCZYCE that you might find interesting.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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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