Zaklady Magnezytowe ROPCZYCE (WSE:RPC) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Zaklady Magnezytowe ROPCZYCE (WSE:RPC) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Zaklady Magnezytowe ROPCZYCE, this is the formula:

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

0.11 = zł48m ÷ (zł603m - zł172m) (Based on the trailing twelve months to September 2022).

So, Zaklady Magnezytowe ROPCZYCE has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Basic Materials industry.

Check out our latest analysis for Zaklady Magnezytowe ROPCZYCE

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'd like to look at how Zaklady Magnezytowe ROPCZYCE has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Zaklady Magnezytowe ROPCZYCE's ROCE Trend?

Zaklady Magnezytowe ROPCZYCE has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 109% whilst employing roughly the same amount of capital. 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.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 29% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

In Conclusion...

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 27% 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 exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you want to know some of the risks facing Zaklady Magnezytowe ROPCZYCE we've found 5 warning signs (1 is significant!) that you should be aware of before investing here.

While Zaklady Magnezytowe ROPCZYCE may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.