Slowing Rates Of Return At Enter Air Sp. z o.o (WSE:ENT) Leave Little Room For Excitement

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at Enter Air Sp. z o.o's (WSE:ENT) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

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 Enter Air Sp. z o.o is:

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

0.14 = zł190m ÷ (zł2.2b - zł813m) (Based on the trailing twelve months to September 2022).

So, Enter Air Sp. z o.o has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Airlines industry average of 11% it's much better.

See our latest analysis for Enter Air Sp. z o.o

Historical performance is a great place to start when researching a stock so above you can see the gauge for Enter Air Sp. z o.o's ROCE against it's prior returns. If you're interested in investigating Enter Air Sp. z o.o's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 14% and the business has deployed 126% more capital into its operations. 14% is a pretty standard return, and it provides some comfort knowing that Enter Air Sp. z o.o 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.

On another note, while the change in ROCE trend might not scream for attention, it's interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn't increased to 37% of total assets, this reported ROCE would probably be less than14% because total capital employed would be higher.The 14% ROCE could be even lower if current liabilities weren't 37% of total assets, because the the formula would show a larger base of total capital employed. With that in mind, just be wary if this ratio increases in the future, because if it gets particularly high, this brings with it some new elements of risk.

Our Take On Enter Air Sp. z o.o's ROCE

In the end, Enter Air Sp. z o.o has proven its ability to adequately reinvest capital at good rates of return. And since the stock has risen strongly over the last five years, it appears the market might expect this trend to continue. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a separate note, we've found 1 warning sign for Enter Air Sp. z o.o you'll probably want to know about.

While Enter Air Sp. z o.o 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. 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.