WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji (WSE:WOD) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So when we looked at WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji (WSE:WOD) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji is:

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

0.0077 = zł1.9m ÷ (zł250m - zł7.8m) (Based on the trailing twelve months to December 2022).

So, WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Water Utilities industry average of 3.9%.

Check out our latest analysis for WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji, check out these free graphs here.

What Does the ROCE Trend For WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji Tell Us?

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 241% 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. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji's ROCE

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 solid 60% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji we've found 5 warning signs (3 can't be ignored!) that you should be aware of before investing here.

While WODKAN Przedsiebiorstwo Wodociagów i Kanalizacji 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.