Wirtualna Polska Holding (WSE:WPL) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Wirtualna Polska Holding (WSE:WPL) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Wirtualna Polska Holding:

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

0.19 = zł290m ÷ (zł2.1b - zł517m) (Based on the trailing twelve months to September 2023).

So, Wirtualna Polska Holding has an ROCE of 19%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Interactive Media and Services industry average of 18%.

See our latest analysis for Wirtualna Polska Holding

In the above chart we have measured Wirtualna Polska Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Wirtualna Polska Holding.

What Can We Tell From Wirtualna Polska Holding's ROCE Trend?

The trends we've noticed at Wirtualna Polska Holding are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. The amount of capital employed has increased too, by 104%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

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. Essentially the business now has suppliers or short-term creditors funding about 25% of its operations, which isn't ideal. 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 Bottom Line On Wirtualna Polska Holding's ROCE

To sum it up, Wirtualna Polska Holding has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 146% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Wirtualna Polska Holding can keep these trends up, it could have a bright future ahead.

On a final note, we've found 2 warning signs for Wirtualna Polska Holding that we think you should be aware of.

While Wirtualna Polska Holding isn't earning the highest return, check out this free list of companies that are 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.