Sanwil Holding Spólka Akcyjna's (WSE:SNW) Returns On Capital Not Reflecting Well On The Business

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think Sanwil Holding Spólka Akcyjna (WSE:SNW) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 16%.

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'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.

How Are Returns Trending?

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. And considering revenue has dropped while employing more capital, we'd be cautious. 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.

The Bottom Line On Sanwil Holding Spólka Akcyjna's ROCE

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. Since the stock has skyrocketed 168% over the last five years, it looks like investors have high expectations of the stock. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you want to know some of the risks facing Sanwil Holding Spólka Akcyjna we've found 2 warning signs (1 is a bit unpleasant!) that you should be aware of before investing here.

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.