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

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Artifex Mundi:

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 19% it's pretty much on par.

See 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'd like to look at how Artifex Mundi has performed in the past in other metrics, you can view 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. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 96% in that same time. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. 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. 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.

Our Take On Artifex Mundi's ROCE

In summary, we're delighted to see that Artifex Mundi has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 240% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 3 warning signs for Artifex Mundi (1 is a bit concerning) 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.

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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.