Sanwil Holding Spólka Akcyjna (WSE:SNW) Could Be Struggling To Allocate Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Sanwil Holding Spólka Akcyjna (WSE:SNW) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Sanwil Holding Spólka Akcyjna, this is the formula:

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

0.0072 = zł425k ÷ (zł69m - zł11m) (Based on the trailing twelve months to September 2022).

Thus, Sanwil Holding Spólka Akcyjna has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 15%.

View 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 want to delve into the historical earnings, revenue and cash flow of Sanwil Holding Spólka Akcyjna, check out these free graphs here.

What Does the ROCE Trend For Sanwil Holding Spólka Akcyjna Tell Us?

On the surface, the trend of ROCE at Sanwil Holding Spólka Akcyjna doesn't inspire confidence. Over the last five years, returns on capital have decreased to 0.7% from 2.4% five years ago. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

In Conclusion...

From the above analysis, we find it rather worrisome that returns on capital and sales for Sanwil Holding Spólka Akcyjna have fallen, meanwhile the business is employing more capital than it was five years ago. Yet despite these concerning fundamentals, the stock has performed strongly with a 42% return over the last five years, so investors appear very optimistic. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

Like most companies, Sanwil Holding Spólka Akcyjna does come with some risks, and we've found 1 warning sign that you should be aware of.

While Sanwil Holding Spólka Akcyjna 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.