Our Take On The Returns On Capital At UNIOR Kovaska industrija d.d (LJSE:UKIG)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at UNIOR Kovaska industrija d.d (LJSE:UKIG), it didn't seem to tick all of these boxes.

Return On Capital Employed (ROCE): What is it?

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 UNIOR Kovaska industrija d.d:

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

0.04 = €11m ÷ (€369m - €95m) (Based on the trailing twelve months to March 2020).

So, UNIOR Kovaska industrija d.d has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 8.4%.

See our latest analysis for UNIOR Kovaska industrija d.d

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'd like to look at how UNIOR Kovaska industrija d.d has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Things have been pretty stable at UNIOR Kovaska industrija d.d, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect UNIOR Kovaska industrija d.d to be a multi-bagger going forward.

The Bottom Line On UNIOR Kovaska industrija d.d's ROCE

In a nutshell, UNIOR Kovaska industrija d.d has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 10% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

UNIOR Kovaska industrija d.d does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

While UNIOR Kovaska industrija 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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This article by Simply Wall St is general in nature. 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.
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