Returns On Capital - An Important Metric For Introl (WSE:INL)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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 Introl (WSE:INL) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for Introl, this is the formula:

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

0.14 = zł32m ÷ (zł363m - zł139m) (Based on the trailing twelve months to September 2020).

Therefore, Introl has an ROCE of 14%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Electronic industry average of 13%.

Check out our latest analysis for Introl

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 Introl's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The trends we've noticed at Introl are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 32% more capital is being employed now too. So we're very much inspired by what we're seeing at Introl thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that Introl is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 40% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing: We've identified 5 warning signs with Introl (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

While Introl 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. 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.
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