The Return Trends At CGE Gas Natural (SNSE:CGEGAS) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at CGE Gas Natural (SNSE:CGEGAS) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for CGE Gas Natural, this is the formula:

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

0.072 = CL$141b ÷ (CL$2.1t - CL$177b) (Based on the trailing twelve months to March 2022).

So, CGE Gas Natural has an ROCE of 7.2%. Ultimately, that's a low return and it under-performs the Gas Utilities industry average of 12%.

Check out our latest analysis for CGE Gas Natural

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 want to delve into the historical earnings, revenue and cash flow of CGE Gas Natural, check out these free graphs here.

What Does the ROCE Trend For CGE Gas Natural Tell Us?

CGE Gas Natural is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 102% whilst employing roughly the same amount of capital. 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

To bring it all together, CGE Gas Natural has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 21% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

CGE Gas Natural does have some risks, we noticed 2 warning signs (and 1 which is concerning) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.