Returns On Capital At Zespól Elektrocieplowni Wroclawskich KOGENERACJA (WSE:KGN) Paint An Interesting Picture

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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 Zespól Elektrocieplowni Wroclawskich KOGENERACJA (WSE:KGN), it didn't seem to tick all of these boxes.

Understanding 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. Analysts use this formula to calculate it for Zespól Elektrocieplowni Wroclawskich KOGENERACJA:

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

0.016 = zł38m ÷ (zł2.6b - zł305m) (Based on the trailing twelve months to September 2020).

Thus, Zespól Elektrocieplowni Wroclawskich KOGENERACJA has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Integrated Utilities industry average of 4.8%.

View our latest analysis for Zespól Elektrocieplowni Wroclawskich KOGENERACJA

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Zespól Elektrocieplowni Wroclawskich KOGENERACJA has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Zespól Elektrocieplowni Wroclawskich KOGENERACJA doesn't inspire confidence. Around five years ago the returns on capital were 6.9%, but since then they've fallen to 1.6%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

To conclude, we've found that Zespól Elektrocieplowni Wroclawskich KOGENERACJA is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 42% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

Zespól Elektrocieplowni Wroclawskich KOGENERACJA does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is potentially serious...

While Zespól Elektrocieplowni Wroclawskich KOGENERACJA isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

When trading Zespól Elektrocieplowni Wroclawskich KOGENERACJA or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.