Aplisens (WSE:APN) Is Looking To Continue Growing Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Aplisens' (WSE:APN) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for Aplisens, this is the formula:

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

0.13 = zł24m ÷ (zł213m - zł22m) (Based on the trailing twelve months to June 2022).

Therefore, Aplisens has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 14% generated by the Electronic industry.

Our analysis indicates that APN is potentially undervalued!

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Aplisens' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Aplisens' ROCE Trend?

We like the trends that we're seeing from Aplisens. The data shows that returns on capital have increased substantially over the last five years to 13%. The amount of capital employed has increased too, by 32%. So we're very much inspired by what we're seeing at Aplisens thanks to its ability to profitably reinvest capital.

The Bottom Line On Aplisens' ROCE

All in all, it's terrific to see that Aplisens is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 15% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know about the risks facing Aplisens, we've discovered 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.