Artifex Mundi (WSE:ART) Is Achieving High Returns On Its Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Artifex Mundi (WSE:ART) looks great, so lets see what the trend can tell us.

Understanding 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 Artifex Mundi is:

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

0.23 = zł12m ÷ (zł61m - zł10m) (Based on the trailing twelve months to September 2022).

So, Artifex Mundi has an ROCE of 23%. In absolute terms that's a very respectable return and compared to the Entertainment industry average of 20% it's pretty much on par.

Check out our latest analysis for Artifex Mundi

Historical performance is a great place to start when researching a stock so above you can see the gauge for Artifex Mundi's ROCE against it's prior returns. If you're interested in investigating Artifex Mundi's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Artifex Mundi Tell Us?

Artifex Mundi is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 96% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 17% of the business, which is more than it was five years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

What We Can Learn From Artifex Mundi's ROCE

To sum it up, Artifex Mundi is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a solid 88% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Artifex Mundi, we've discovered 3 warning signs that you should be aware of.

Artifex Mundi is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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

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.