What Do The Returns At Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji (WSE:WOD) Mean Going Forward?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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 Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji's (WSE:WOD) returns on capital, so let's have a look.

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

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. 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)

0.0077 = zł1.8m ÷ (zł235m - zł8.1m) (Based on the trailing twelve months to December 2020).

Thus, Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji has an ROCE of 0.8%. Ultimately, that's a low return and it under-performs the Water Utilities industry average of 5.2%.

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're interested in investigating Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

While there are companies with higher returns on capital out there, we still find the trend at Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 27% in that same time. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji's ROCE

As discussed above, Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 113% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji does have some risks though, and we've spotted 3 warning signs for Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji that you might be interested in.

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.

If you’re looking to trade Wodkan Przedsiebiorstwo Wodociagów i Kanalizacji, open an account with the lowest-cost* platform trusted by professionals, Interactive Brokers. Their clients from over 200 countries and territories trade 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.