Returns On Capital At SferaNet Spólka Akcyjna (WSE:SFN) Paint A Concerning Picture

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. However, after investigating SferaNet Spólka Akcyjna (WSE:SFN), we don't think it's current trends fit the mold of a multi-bagger.

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 SferaNet Spólka Akcyjna is:

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

0.026 = zł1.4m ÷ (zł61m - zł5.3m) (Based on the trailing twelve months to December 2021).

Thus, SferaNet Spólka Akcyjna has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 9.8%.

Check out our latest analysis for SferaNet Spólka Akcyjna

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

So How Is SferaNet Spólka Akcyjna's ROCE Trending?

When we looked at the ROCE trend at SferaNet Spólka Akcyjna, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 2.6% from 5.3% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From SferaNet Spólka Akcyjna's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for SferaNet Spólka Akcyjna. In light of this, the stock has only gained 8.8% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for SferaNet Spólka Akcyjna (of which 3 are a bit concerning!) that you should know about.

While SferaNet Spólka Akcyjna isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.