What Do The Returns At Cinkarna Celje d. d (LJSE:CICG) Mean Going Forward?

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Cinkarna Celje d. d (LJSE:CICG) looks quite promising in regards to its trends of return on capital.

Understanding 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. The formula for this calculation on Cinkarna Celje d. d is:

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

0.10 = €19m ÷ (€206m - €15m) (Based on the trailing twelve months to September 2020).

Therefore, Cinkarna Celje d. d has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Chemicals industry average of 9.4%.

View our latest analysis for Cinkarna Celje d. d

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

What The Trend Of ROCE Can Tell Us

Cinkarna Celje d. d has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 77% whilst employing roughly the same amount of capital. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To sum it up, Cinkarna Celje d. d is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 294% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you'd like to know about the risks facing Cinkarna Celje d. d, we've discovered 1 warning sign that you should be aware of.

While Cinkarna Celje d. d 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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