Some Investors May Be Worried About WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's (WSE:WOD) Returns On Capital

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after glancing at the trends within WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji (WSE:WOD), we weren't too hopeful.

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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. To calculate this metric for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji, this is the formula:

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

0.0073 = zł1.7m ÷ (zł250m - zł9.4m) (Based on the trailing twelve months to March 2025).

Thus, WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Water Utilities industry average of 3.0%.

Check out our latest analysis for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji

Historical performance is a great place to start when researching a stock so above you can see the gauge for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's ROCE against it's prior returns. If you'd like to look at how WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji has performed in the past in other metrics, you can view this free graph of WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji. To be more specific, the ROCE was 1.1% 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. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji becoming one if things continue as they have.

The Key Takeaway

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. It should come as no surprise then that the stock has fallen 16% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One more thing: We've identified 3 warning signs with WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji (at least 2 which are potentially serious) , and understanding these would certainly be useful.

While WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.