Zespól Elektrocieplowni Wroclawskich KOGENERACJA's (WSE:KGN) Returns On Capital Are Heading Higher

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Zespól Elektrocieplowni Wroclawskich KOGENERACJA's (WSE:KGN) returns on capital, so let's have a look.

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 Zespól Elektrocieplowni Wroclawskich KOGENERACJA:

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

0.14 = zł369m ÷ (zł3.7b - zł978m) (Based on the trailing twelve months to September 2023).

So, Zespól Elektrocieplowni Wroclawskich KOGENERACJA has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Integrated Utilities industry average of 6.3% it's much better.

View our latest analysis for Zespól Elektrocieplowni Wroclawskich KOGENERACJA

Above you can see how the current ROCE for Zespól Elektrocieplowni Wroclawskich KOGENERACJA 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 Zespól Elektrocieplowni Wroclawskich KOGENERACJA.

What Can We Tell From Zespól Elektrocieplowni Wroclawskich KOGENERACJA's ROCE Trend?

Zespól Elektrocieplowni Wroclawskich KOGENERACJA is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The amount of capital employed has increased too, by 30%. So we're very much inspired by what we're seeing at Zespól Elektrocieplowni Wroclawskich KOGENERACJA thanks to its ability to profitably reinvest capital.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 27% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

The Bottom Line

To sum it up, Zespól Elektrocieplowni Wroclawskich KOGENERACJA has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 76% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Zespól Elektrocieplowni Wroclawskich KOGENERACJA, we've discovered 1 warning sign that you should be aware of.

While Zespól Elektrocieplowni Wroclawskich KOGENERACJA 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.