Some Investors May Be Worried About PCF Group Spólka Akcyjna's (WSE:PCF) Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. However, after briefly looking over the numbers, we don't think PCF Group Spólka Akcyjna (WSE:PCF) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 PCF Group Spólka Akcyjna is:

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

0.14 = zł46m ÷ (zł385m - zł42m) (Based on the trailing twelve months to September 2022).

Therefore, PCF Group Spólka Akcyjna has an ROCE of 14%. In absolute terms, that's a pretty standard return but compared to the Entertainment industry average it falls behind.

View our latest analysis for PCF Group Spólka Akcyjna

In the above chart we have measured PCF Group Spólka Akcyjna's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering PCF Group Spólka Akcyjna here for free.

What Does the ROCE Trend For PCF Group Spólka Akcyjna Tell Us?

In terms of PCF Group Spólka Akcyjna's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 40% over the last four years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

In Conclusion...

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for PCF Group Spólka Akcyjna. These trends don't appear to have influenced returns though, because the total return from the stock has been mostly flat over the last year. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing to note, we've identified 1 warning sign with PCF Group Spólka Akcyjna and understanding it should be part of your investment process.

While PCF Group Spólka Akcyjna may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.