Returns Are Gaining Momentum At TAURON Polska Energia (WSE:TPE)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at TAURON Polska Energia (WSE:TPE) and its trend of ROCE, we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for TAURON Polska Energia:

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

0.087 = zł2.9b ÷ (zł42b - zł8.2b) (Based on the trailing twelve months to March 2021).

So, TAURON Polska Energia has an ROCE of 8.7%. In absolute terms, that's a low return, but it's much better than the Electric Utilities industry average of 6.7%.

Check out our latest analysis for TAURON Polska Energia

In the above chart we have measured TAURON Polska Energia's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for TAURON Polska Energia.

The Trend Of ROCE

TAURON Polska Energia has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 49% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

In summary, we're delighted to see that TAURON Polska Energia has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 8.1% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a separate note, we've found 1 warning sign for TAURON Polska Energia you'll probably want to know about.

While TAURON Polska Energia 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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