Pollard Banknote (TSE:PBL) capital returns do not reflect activity well
If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. First, we would like to identify a growth come back on capital employed (ROCE) and at the same time, a base capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. However, after briefly looking at the numbers, we don’t think Ticket Pollard (TSE:PBL) has the makings of a multi-bagger in the future, but let’s see why it might be.
What is return on capital employed (ROCE)?
If you’ve never worked with ROCE before, it measures the “yield” (pre-tax profit) a company generates from the capital used in its business. Analysts use this formula to calculate it for Pollard Banknote:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.065 = C$24 million ÷ (C$462 million – C$93 million) (Based on the last twelve months to March 2022).
So, Pollard Banknote has a ROCE of 6.5%. In absolute terms, this is a weak return and it is also below the hotel industry average of 8.7%.
Check out our latest analysis for Pollard Banknote
In the chart above, we measured Pollard Banknote’s past ROCE against its past performance, but the future is arguably more important. If you’re interested, you can check out analyst forecasts in our free analyst forecast report for the company.
What can we say about the Pollard Banknote ROCE trend?
On the surface, the ROCE trend at Pollard Banknote does not inspire confidence. About five years ago, the return on capital was 15%, but since then it has fallen to 6.5%. Meanwhile, the company is using more capital, but that hasn’t changed much in terms of sales over the past 12 months, so that could reflect longer-term investments. It may take some time before the company begins to see a change in the income from these investments.
The basics of Pollard Banknote’s ROCE
In summary, Pollard Banknote is reinvesting funds into the business for growth, but unfortunately it appears sales haven’t grown much yet. Yet for long-term shareholders, the stock has offered them an incredible 110% return over the past five years, so the market appears to be optimistic about its future. But if the trajectory of these underlying trends continues, we think the likelihood of it being a multi-bagger from here is not high.
Pollard Banknote does come with some risks though, and we have spotted 3 warning signs for Pollard Banknote that might interest you.
Although Pollard Banknote does not generate the highest return, check out this free list of companies that achieve high returns on equity with strong balance sheets.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.