Polygiene Group (STO:POLYG) Is Experiencing Growth In Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Polygiene Group's (STO:POLYG) returns on capital, so let's have a look.

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. The formula for this calculation on Polygiene Group is:

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

0.041 = kr13m ÷ (kr351m - kr30m) (Based on the trailing twelve months to December 2024).

Thus, Polygiene Group has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 16%.

See our latest analysis for Polygiene Group

Above you can see how the current ROCE for Polygiene Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Polygiene Group .

What Can We Tell From Polygiene Group's ROCE Trend?

Polygiene Group has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 4.1% on its capital. In addition to that, Polygiene Group is employing 994% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Polygiene Group has decreased current liabilities to 8.4% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Polygiene Group has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Polygiene Group's ROCE

Long story short, we're delighted to see that Polygiene Group's reinvestment activities have paid off and the company is now profitable. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 76% return over the last five years. 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.

Polygiene Group does have some risks though, and we've spotted 2 warning signs for Polygiene Group that you might be interested in.

While Polygiene Group 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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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.