Zaklady Urzadzen Komputerowych ELZAB (WSE:ELZ) Is Very Good At Capital Allocation

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Zaklady Urzadzen Komputerowych ELZAB's (WSE:ELZ) look very promising so lets take a look.

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. The formula for this calculation on Zaklady Urzadzen Komputerowych ELZAB is:

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).

Thus, Zaklady Urzadzen Komputerowych ELZAB has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 15% earned by companies in a similar industry.

View our latest analysis for Zaklady Urzadzen Komputerowych ELZAB

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 want to delve into the historical earnings, revenue and cash flow of Zaklady Urzadzen Komputerowych ELZAB, check out these free graphs here.

How Are Returns Trending?

Zaklady Urzadzen Komputerowych ELZAB's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 218% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Another thing to note, Zaklady Urzadzen Komputerowych ELZAB has a high ratio of current liabilities to total assets of 43%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From Zaklady Urzadzen Komputerowych ELZAB's ROCE

In summary, we're delighted to see that Zaklady Urzadzen Komputerowych ELZAB has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has dived 82% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

One final note, you should learn about the 4 warning signs we've spotted with Zaklady Urzadzen Komputerowych ELZAB (including 1 which is a bit unpleasant) .

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.