S.C. Promateris (BVB:PPL) Is Experiencing Growth In Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at S.C. Promateris (BVB:PPL) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 S.C. Promateris, this is the formula:

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

0.15 = RON19m ÷ (RON181m - RON54m) (Based on the trailing twelve months to September 2021).

So, S.C. Promateris has an ROCE of 15%. That's a relatively normal return on capital, and it's around the 13% generated by the Chemicals industry.

See our latest analysis for S.C. Promateris

Historical performance is a great place to start when researching a stock so above you can see the gauge for S.C. Promateris' ROCE against it's prior returns. If you're interested in investigating S.C. Promateris' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is S.C. Promateris' ROCE Trending?

Investors would be pleased with what's happening at S.C. Promateris. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 107%. So we're very much inspired by what we're seeing at S.C. Promateris thanks to its ability to profitably reinvest capital.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 30% of the business, which is more than it was five years ago. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

The Key Takeaway

All in all, it's terrific to see that S.C. Promateris is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 503% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 3 warning signs with S.C. Promateris (at least 1 which can't be ignored) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.