Should You Be Impressed By Sonel's (WSE:SON) Returns on Capital?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Sonel's (WSE:SON) trend of ROCE, we liked what we saw.

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 Sonel:

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

0.16 = zł16m ÷ (zł111m - zł13m) (Based on the trailing twelve months to September 2020).

Therefore, Sonel has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 13% generated by the Electronic industry.

View our latest analysis for Sonel

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sonel's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Sonel, check out these free graphs here.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 33% in that time. 16% is a pretty standard return, and it provides some comfort knowing that Sonel has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Sonel's ROCE

To sum it up, Sonel has simply been reinvesting capital steadily, at those decent rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last five years. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Sonel does have some risks though, and we've spotted 2 warning signs for Sonel that you might be interested in.

While Sonel 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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