Shareholders Would Enjoy A Repeat Of Zaklady Urzadzen Komputerowych ELZAB's (WSE:ELZ) Recent Growth In Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Zaklady Urzadzen Komputerowych ELZAB (WSE:ELZ) we really liked what we saw.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Zaklady Urzadzen Komputerowych ELZAB, this is the formula:

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

0.23 = zł22m ÷ (zł166m - zł71m) (Based on the trailing twelve months to September 2021).

Therefore, Zaklady Urzadzen Komputerowych ELZAB has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Electronic industry average of 16%.

View our latest analysis for Zaklady Urzadzen Komputerowych ELZAB

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zaklady Urzadzen Komputerowych ELZAB's ROCE against it's prior returns. If you're interested in investigating Zaklady Urzadzen Komputerowych ELZAB's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Zaklady Urzadzen Komputerowych ELZAB Tell Us?

Zaklady Urzadzen Komputerowych ELZAB's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 218% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. 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.

Another thing to note, Zaklady Urzadzen Komputerowych ELZAB has a high ratio of current liabilities to total assets of 43%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Zaklady Urzadzen Komputerowych ELZAB's ROCE

As discussed above, Zaklady Urzadzen Komputerowych ELZAB appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. However the stock is down a substantial 86% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

If you want to know some of the risks facing Zaklady Urzadzen Komputerowych ELZAB we've found 5 warning signs (2 are significant!) that you should be aware of before investing here.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.