Yahoo Finance Pollard Banknote (TSE:PBL) Is Reinvesting At Lower Rates Of Return
If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Pollard Banknote (TSE:PBL), it didn't seem to tick all of these boxes.
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. The formula for this calculation on Pollard Banknote is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0098 = CA$4.1m ÷ (CA$501m - CA$84m) (Based on the trailing twelve months to September 2023).
Therefore, Pollard Banknote has an ROCE of 1.0%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 11%.
See our latest analysis for Pollard Banknote
Above you can see how the current ROCE for Pollard Banknote compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What Can We Tell From Pollard Banknote's ROCE Trend?
When we looked at the ROCE trend at Pollard Banknote, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 1.0% from 18% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
What We Can Learn From Pollard Banknote's ROCE
In summary, Pollard Banknote is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has gained an impressive 48% over the last five years, investors must think there's better things to come. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.
One more thing to note, we've identified 1 warning sign with Pollard Banknote and understanding this should be part of your investment process.
While Pollard Banknote 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.
