Investors Could Be Concerned With Sanwil Holding Spólka Akcyjna's (WSE:SNW) 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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Sanwil Holding Spólka Akcyjna (WSE:SNW), it didn't seem to tick all of these boxes.

Understanding 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. The formula for this calculation on Sanwil Holding Spólka Akcyjna is:

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

0.00082 = zł48k ÷ (zł69m - zł11m) (Based on the trailing twelve months to September 2022).

Therefore, Sanwil Holding Spólka Akcyjna has an ROCE of 0.08%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 12%.

See our latest analysis for Sanwil Holding Spólka Akcyjna

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're interested in investigating Sanwil Holding Spólka Akcyjna's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Sanwil Holding Spólka Akcyjna's ROCE Trend?

In terms of Sanwil Holding Spólka Akcyjna's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 2.4% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

What We Can Learn From Sanwil Holding Spólka Akcyjna's ROCE

In summary, we're somewhat concerned by Sanwil Holding Spólka Akcyjna's diminishing returns on increasing amounts of capital. Yet despite these poor fundamentals, the stock has gained a huge 198% over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Like most companies, Sanwil Holding Spólka Akcyjna does come with some risks, and we've found 2 warning signs that you should be aware of.

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.