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Shareholders Would Enjoy A Repeat Of TOYA’s (WSE:TOA) Recent Growth In Returns

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To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s 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 TOYA’s (WSE:TOA) returns on capital, so let’s have a look.

What is Return On Capital Employed (ROCE)?

For those that aren’t sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on TOYA is:

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

0.29 = zł69m ÷ (zł420m – zł179m) (Based on the trailing twelve months to September 2020).

Thus, TOYA has an ROCE of 29%. That’s a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

View our latest analysis for TOYA

WSE:TOA Return on Capital Employed April 1st 2021

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 want to delve into the historical earnings, revenue and cash flow of TOYA, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

We like the trends that we’re seeing from TOYA. The data shows that returns on capital have increased substantially over the last five years to 29%. Basically the business is earning more per dollar of capital invested and in addition to that, 53% 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.

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. The current liabilities has increased to 43% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that’s pretty high.

The Bottom Line

All in all, it’s terrific to see that TOYA is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 119% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

While TOYA looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether TOA is currently trading for a fair price.

If you’d like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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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