The Trends At Enel Américas (SNSE:ENELAM) That You Should Know About

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Having said that, from a first glance at Enel Américas (SNSE:ENELAM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Enel Américas, this is the formula:

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

0.10 = US$2.0b ÷ (US$27b - US$7.3b) (Based on the trailing twelve months to December 2020).

Thus, Enel Américas has an ROCE of 10.0%. In absolute terms, that's a low return but it's around the Electric Utilities industry average of 9.0%.

See our latest analysis for Enel Américas

Above you can see how the current ROCE for Enel Américas 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.

So How Is Enel Américas' ROCE Trending?

The returns on capital haven't changed much for Enel Américas in recent years. Over the past five years, ROCE has remained relatively flat at around 10.0% and the business has deployed 28% more capital into its operations. 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.

Our Take On Enel Américas' ROCE

In conclusion, Enel Américas has been investing more capital into the business, but returns on that capital haven't increased. Unsurprisingly, the stock has only gained 36% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a separate note, we've found 3 warning signs for Enel Américas you'll probably want to know about.

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

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