Investors Will Want Sanwil Holding Spólka Akcyjna's (WSE:SNW) Growth In ROCE To Persist

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Sanwil Holding Spólka Akcyjna's (WSE:SNW) returns on capital, so let's have a look.

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. 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)

0.047 = zł2.8m ÷ (zł70m - zł9.8m) (Based on the trailing twelve months to September 2021).

Therefore, Sanwil Holding Spólka Akcyjna has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.7%.

See our latest analysis for Sanwil Holding Spólka Akcyjna

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sanwil Holding Spólka Akcyjna's ROCE against it's prior returns. 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 The Trend Of ROCE Can Tell Us

The fact that Sanwil Holding Spólka Akcyjna is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 4.7% which is a sight for sore eyes. In addition to that, Sanwil Holding Spólka Akcyjna is employing 45% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

One more thing to note, Sanwil Holding Spólka Akcyjna has decreased current liabilities to 14% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On Sanwil Holding Spólka Akcyjna's ROCE

In summary, it's great to see that Sanwil Holding Spólka Akcyjna has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 190% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.

One more thing: We've identified 3 warning signs with Sanwil Holding Spólka Akcyjna (at least 2 which shouldn't be ignored) , and understanding them would certainly be useful.

While Sanwil Holding Spólka Akcyjna isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.