Should You Be Impressed By Chelyabinsk plant of the profiled steel decking's (MCX:PRFN) Returns on Capital?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Chelyabinsk plant of the profiled steel decking (MCX:PRFN), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Chelyabinsk plant of the profiled steel decking:

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

0.016 = ₽187m ÷ (₽13b - ₽1.3b) (Based on the trailing twelve months to June 2020).

Therefore, Chelyabinsk plant of the profiled steel decking has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 7.6%.

See our latest analysis for Chelyabinsk plant of the profiled steel decking

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're interested in investigating Chelyabinsk plant of the profiled steel decking's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Chelyabinsk plant of the profiled steel decking Tell Us?

On the surface, the trend of ROCE at Chelyabinsk plant of the profiled steel decking doesn't inspire confidence. To be more specific, ROCE has fallen from 13% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

On a related note, Chelyabinsk plant of the profiled steel decking has decreased its current liabilities to 10% of total assets. Since the ratio used to be 61%, that's a significant reduction and it no doubt explains the drop in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Key Takeaway

While returns have fallen for Chelyabinsk plant of the profiled steel decking in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And long term investors must be optimistic going forward because the stock has returned a huge 127% to shareholders in the last five years. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

If you'd like to know more about Chelyabinsk plant of the profiled steel decking, we've spotted 5 warning signs, and 1 of them is significant.

While Chelyabinsk plant of the profiled steel decking 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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