What Do The Returns On Capital At SferaNet Spólka Akcyjna (WSE:SFN) Tell Us?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at SferaNet Spólka Akcyjna (WSE:SFN), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for SferaNet Spólka Akcyjna:

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

0.016 = zł596k ÷ (zł41m - zł4.3m) (Based on the trailing twelve months to September 2020).

So, SferaNet Spólka Akcyjna has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Telecom industry average of 9.9%.

View 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'd like to look at how SferaNet Spólka Akcyjna has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For SferaNet Spólka Akcyjna Tell Us?

When we looked at the ROCE trend at SferaNet Spólka Akcyjna, we didn't gain much confidence. Around five years ago the returns on capital were 4.5%, but since then they've fallen to 1.6%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a side note, SferaNet Spólka Akcyjna has done well to pay down its current liabilities to 10% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

The Bottom Line On SferaNet Spólka Akcyjna's ROCE

While returns have fallen for SferaNet Spólka Akcyjna in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 19% 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 5 warning signs for SferaNet Spólka Akcyjna (of which 3 are significant!) that you should know about.

While SferaNet Spólka Akcyjna 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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