Here’s What’s Happening With Returns At Urals Stampings Plant PAO (MCX:URKZ)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So when we looked at Urals Stampings Plant PAO (MCX:URKZ) 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 Urals Stampings Plant PAO is:

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

0.08 = ₽2.7b ÷ (₽36b - ₽2.1b) (Based on the trailing twelve months to June 2020).

Thus, Urals Stampings Plant PAO has an ROCE of 8.0%. In absolute terms, that's a low return but it's around the Metals and Mining industry average of 9.5%.

See our latest analysis for Urals Stampings Plant PAO

Historical performance is a great place to start when researching a stock so above you can see the gauge for Urals Stampings Plant PAO's ROCE against it's prior returns. If you'd like to look at how Urals Stampings Plant PAO has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 8.0%. Basically the business is earning more per dollar of capital invested and in addition to that, 80% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 5.7%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Urals Stampings Plant PAO's ROCE

In summary, it's great to see that Urals Stampings Plant PAO can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 174% total return over the last five years tells us that investors are expecting more good things to come in the future. 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.

Urals Stampings Plant PAO does have some risks though, and we've spotted 1 warning sign for Urals Stampings Plant PAO that you might be interested in.

While Urals Stampings Plant PAO 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.

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