KONCAR - Elektroindustrija d.d (ZGSE:KOEI) Could Become A Multi-Bagger

Simply Wall St · 10/15 04:13

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. So when we looked at the ROCE trend of KONCAR - Elektroindustrija d.d (ZGSE:KOEI) we really liked what we saw.

What Is 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. To calculate this metric for KONCAR - Elektroindustrija d.d, this is the formula:

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

0.20 = €127m ÷ (€1.1b - €412m) (Based on the trailing twelve months to June 2024).

So, KONCAR - Elektroindustrija d.d has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

Check out our latest analysis for KONCAR - Elektroindustrija d.d

roce
ZGSE:KOEI Return on Capital Employed October 15th 2024

Above you can see how the current ROCE for KONCAR - Elektroindustrija d.d compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering KONCAR - Elektroindustrija d.d for free.

The Trend Of ROCE

Investors would be pleased with what's happening at KONCAR - Elektroindustrija d.d. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 20%. The amount of capital employed has increased too, by 77%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 39% of its operations, which isn't ideal. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

What We Can Learn From KONCAR - Elektroindustrija d.d's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what KONCAR - Elektroindustrija d.d has. Since the stock has returned a staggering 386% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if KONCAR - Elektroindustrija d.d can keep these trends up, it could have a bright future ahead.

If you want to know some of the risks facing KONCAR - Elektroindustrija d.d we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.

KONCAR - Elektroindustrija d.d is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.