Romande Energie Holding (VTX:REHN) Hasn't Managed To Accelerate Its Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Romande Energie Holding (VTX:REHN), it didn't seem to tick all of these boxes.

What Is 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 Romande Energie Holding:

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

0.038 = CHF90m ÷ (CHF2.5b - CHF176m) (Based on the trailing twelve months to June 2023).

Therefore, Romande Energie Holding has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Electric Utilities industry average of 9.2%.

Check out our latest analysis for Romande Energie Holding

In the above chart we have measured Romande Energie Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Romande Energie Holding here for free.

What The Trend Of ROCE Can Tell Us

Things have been pretty stable at Romande Energie Holding, with its capital employed and returns on that capital staying somewhat the same for the last five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Romande Energie Holding to be a multi-bagger going forward.

The Bottom Line

We can conclude that in regards to Romande Energie Holding's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 28% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Romande Energie Holding does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...

While Romande Energie Holding 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.