Kino Polska TV Spolka Akcyjna (WSE:KPL) Could Become A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Kino Polska TV Spolka Akcyjna's (WSE:KPL) returns on capital, so let's have a look.

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. To calculate this metric for Kino Polska TV Spolka Akcyjna, this is the formula:

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

0.35 = zł67m ÷ (zł279m - zł85m) (Based on the trailing twelve months to June 2022).

Therefore, Kino Polska TV Spolka Akcyjna has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Media industry average of 16%.

Check out the opportunities and risks within the PL Media industry.

Above you can see how the current ROCE for Kino Polska TV Spolka Akcyjna compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Kino Polska TV Spolka Akcyjna here for free.

How Are Returns Trending?

The trends we've noticed at Kino Polska TV Spolka Akcyjna are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 35%. The amount of capital employed has increased too, by 161%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 31%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Kino Polska TV Spolka Akcyjna has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line

All in all, it's terrific to see that Kino Polska TV Spolka Akcyjna is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 57% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Kino Polska TV Spolka Akcyjna does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

Kino Polska TV Spolka Akcyjna 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.

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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.