Under The Bonnet, Artifex Mundi's (WSE:ART) Returns Look Impressive

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. And in light of that, the trends we're seeing at Artifex Mundi's (WSE:ART) look very promising so lets take a look.

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. 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).

Thus, Artifex Mundi has an ROCE of 23%. In absolute terms that's a very respectable return and compared to the Entertainment industry average of 22% 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's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 96% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 17% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Key Takeaway

To bring it all together, Artifex Mundi has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 31% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, Artifex Mundi does come with some risks, and we've found 2 warning signs that you should be aware of.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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.