We Like These Underlying Return On Capital Trends At ENERGOAQUA (SEP:ENRGA)

Simply Wall St · 10/18 05:54

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at ENERGOAQUA (SEP:ENRGA) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for ENERGOAQUA:

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

0.079 = Kč285m ÷ (Kč3.7b - Kč135m) (Based on the trailing twelve months to December 2023).

Thus, ENERGOAQUA has an ROCE of 7.9%. In absolute terms, that's a low return, but it's much better than the Integrated Utilities industry average of 6.4%.

Check out our latest analysis for ENERGOAQUA

roce
SEP:ENRGA Return on Capital Employed October 18th 2024

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'd like to look at how ENERGOAQUA has performed in the past in other metrics, you can view this free graph of ENERGOAQUA's past earnings, revenue and cash flow.

What Does the ROCE Trend For ENERGOAQUA Tell Us?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.9%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 51%. 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.

What We Can Learn From ENERGOAQUA'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 ENERGOAQUA has. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 53% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a separate note, we've found 1 warning sign for ENERGOAQUA you'll probably want to know about.

While ENERGOAQUA 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.