The Return Trends At CEZ Distribution Bulgaria AD (BUL:CEZD) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in CEZ Distribution Bulgaria AD's (BUL:CEZD) returns on capital, so let's have a look.

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 CEZ Distribution Bulgaria AD is:

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

0.057 = лв45m ÷ (лв963m - лв172m) (Based on the trailing twelve months to March 2021).

So, CEZ Distribution Bulgaria AD has an ROCE of 5.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.4%.

View our latest analysis for CEZ Distribution Bulgaria AD

Above you can see how the current ROCE for CEZ Distribution Bulgaria AD 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 Does the ROCE Trend For CEZ Distribution Bulgaria AD Tell Us?

CEZ Distribution Bulgaria AD has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 59% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On CEZ Distribution Bulgaria AD's ROCE

To bring it all together, CEZ Distribution Bulgaria AD has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

While CEZ Distribution Bulgaria AD 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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