Returns On Capital At Elia Group (EBR:ELI) Have Hit The Brakes

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Elia Group (EBR:ELI), it didn't seem to tick all of these boxes.

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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 Elia Group:

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

0.053 = €1.3b ÷ (€29b - €4.2b) (Based on the trailing twelve months to June 2025).

So, Elia Group has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 7.2%.

Check out our latest analysis for Elia Group

Above you can see how the current ROCE for Elia Group 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 analyst report for Elia Group .

What The Trend Of ROCE Can Tell Us

In terms of Elia Group's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 5.3% for the last five years, and the capital employed within the business has risen 106% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In summary, Elia Group has simply been reinvesting capital and generating the same low rate of return as before. And with the stock having returned a mere 35% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we've found 3 warning signs for Elia Group that we think you should be aware of.

While Elia Group 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.