There's Been No Shortage Of Growth Recently For Romande Energie Holding's (VTX:REHN) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Romande Energie Holding (VTX:REHN) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Romande Energie Holding is:

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

0.041 = CHF100m ÷ (CHF2.6b - CHF181m) (Based on the trailing twelve months to December 2023).

So, Romande Energie Holding has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Electric Utilities industry average of 6.9%.

View our latest analysis for Romande Energie Holding

Above you can see how the current ROCE for Romande Energie Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Romande Energie Holding .

So How Is Romande Energie Holding's ROCE Trending?

While there are companies with higher returns on capital out there, we still find the trend at Romande Energie Holding promising. 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 26% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Bottom Line On Romande Energie Holding's ROCE

To bring it all together, Romande Energie Holding has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 41% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Romande Energie Holding can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Romande Energie Holding, we've spotted 2 warning signs, and 1 of them is concerning.

While Romande Energie Holding isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.