TAURON Polska Energia (WSE:TPE) Has Some Way To Go To Become A Multi-Bagger

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at TAURON Polska Energia (WSE:TPE), it didn't seem to tick all of these boxes.

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. 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)

0.066 = zł2.0b ÷ (zł40b - zł9.9b) (Based on the trailing twelve months to December 2021).

So, TAURON Polska Energia has an ROCE of 6.6%. On its own, that's a low figure but it's around the 7.8% average generated by the Electric Utilities industry.

See 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.

What Can We Tell From TAURON Polska Energia's ROCE Trend?

Things have been pretty stable at TAURON Polska Energia, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if TAURON Polska Energia doesn't end up being a multi-bagger in a few years time.

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 25% of total assets, this reported ROCE would probably be less than6.6% because total capital employed would be higher.The 6.6% ROCE could be even lower if current liabilities weren't 25% 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.

What We Can Learn From TAURON Polska Energia's ROCE

We can conclude that in regards to TAURON Polska Energia's returns on capital employed and the trends, there isn't much change to report on. And investors appear hesitant that the trends will pick up because the stock has fallen 10% in the last five years. 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.

If you want to continue researching TAURON Polska Energia, you might be interested to know about the 3 warning signs that our analysis has discovered.

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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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.