Returns Are Gaining Momentum At Sanwil Holding Spólka Akcyjna (WSE:SNW)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. With that in mind, we've noticed some promising trends at Sanwil Holding Spólka Akcyjna (WSE:SNW) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.13 = zł7.4m ÷ (zł68m - zł12m) (Based on the trailing twelve months to March 2021).

Thus, Sanwil Holding Spólka Akcyjna has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 9.8% it's much better.

Check out 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'd like to look at how Sanwil Holding Spólka Akcyjna has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Sanwil Holding Spólka Akcyjna's ROCE Trending?

The fact that Sanwil Holding Spólka Akcyjna is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 13% on its capital. And unsurprisingly, like most companies trying to break into the black, Sanwil Holding Spólka Akcyjna is utilizing 26% more capital than it was five years ago. 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 18%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

Our Take On Sanwil Holding Spólka Akcyjna's ROCE

Overall, Sanwil Holding Spólka Akcyjna gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 2 warning signs for Sanwil Holding Spólka Akcyjna (1 makes us a bit uncomfortable) you should be aware of.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.