Here's What To Make Of Enel Chile's (SNSE:ENELCHILE) Decelerating Rates Of Return

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at Enel Chile (SNSE:ENELCHILE) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Enel Chile:

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

0.092 = CL$977b ÷ (CL$13t - CL$2.1t) (Based on the trailing twelve months to June 2024).

Thus, Enel Chile has an ROCE of 9.2%. Ultimately, that's a low return and it under-performs the Electric Utilities industry average of 17%.

See our latest analysis for Enel Chile

In the above chart we have measured Enel Chile'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 Enel Chile for free.

How Are Returns Trending?

There are better returns on capital out there than what we're seeing at Enel Chile. Over the past five years, ROCE has remained relatively flat at around 9.2% and the business has deployed 64% 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 Chile's ROCE

As we've seen above, Enel Chile's returns on capital haven't increased but it is reinvesting in the business. And investors may be recognizing these trends since the stock has only returned a total of 7.6% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing: We've identified 5 warning signs with Enel Chile (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

While Enel Chile 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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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.