We Like These Underlying Return On Capital Trends At Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji (WSE:WOD)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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 on that note, Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji (WSE:WOD) looks quite promising in regards to its trends of return on capital.

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

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 Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji:

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

0.0058 = zł1.3m ÷ (zł241m - zł13m) (Based on the trailing twelve months to March 2021).

Therefore, Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Water Utilities industry average of 4.7%.

See 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 past earnings, revenue and cash flow.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 30% over the last five years. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

To bring it all together, Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 109% to shareholders over the last five years, it looks like investors are recognizing 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 Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji, we've discovered 2 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

When trading Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji 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 (at) simplywallst.com.