Investors Will Want Trakcja's (WSE:TRK) Growth In ROCE To Persist
To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Trakcja (WSE:TRK) so let's look a bit deeper.
Understanding 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. Analysts use this formula to calculate it for Trakcja:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = zł80m ÷ (zł1.7b - zł1.2b) (Based on the trailing twelve months to September 2025).
Thus, Trakcja has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 11% generated by the Construction industry.
View our latest analysis for Trakcja
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're interested in investigating Trakcja's past further, check out this free graph covering Trakcja's past earnings, revenue and cash flow.
What Can We Tell From Trakcja's ROCE Trend?
Like most people, we're pleased that Trakcja is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 16% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 34% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. This could potentially mean that the company is selling some of its assets.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 70% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.
In Conclusion...
In the end, Trakcja has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a solid 72% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
Like most companies, Trakcja does come with some risks, and we've found 1 warning sign that you should be aware of.
While Trakcja isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.