These Return Metrics Don't Make Pkp Cargo (WSE:PKP) Look Too Strong

When researching a stock for investment, what can tell us that the company is in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. Having said that, after a brief look, Pkp Cargo (WSE:PKP) we aren't filled with optimism, but let's investigate further.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Pkp Cargo is:

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

0.0041 = zł23m ÷ (zł7.5b - zł2.0b) (Based on the trailing twelve months to September 2022).

Therefore, Pkp Cargo has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Transportation industry average of 5.4%.

See our latest analysis for Pkp Cargo

Above you can see how the current ROCE for Pkp Cargo compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Pkp Cargo.

What Can We Tell From Pkp Cargo's ROCE Trend?

There is reason to be cautious about Pkp Cargo, given the returns are trending downwards. To be more specific, the ROCE was 2.1% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Pkp Cargo becoming one if things continue as they have.

What We Can Learn From Pkp Cargo's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. It should come as no surprise then that the stock has fallen 58% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you're still interested in Pkp Cargo it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While Pkp Cargo 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.