Returns On Capital Are Showing Encouraging Signs At Naturgy Chile Gas Natural (SNSE:NTGCLGAS)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 on that note, Naturgy Chile Gas Natural (SNSE:NTGCLGAS) looks quite promising in regards to its trends of return on capital.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Naturgy Chile Gas Natural:

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

0.16 = CL$403b ÷ (CL$2.8t - CL$204b) (Based on the trailing twelve months to September 2024).

So, Naturgy Chile Gas Natural has an ROCE of 16%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Gas Utilities industry average of 14%.

Check out our latest analysis for Naturgy Chile 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're interested in investigating Naturgy Chile Gas Natural's past further, check out this free graph covering Naturgy Chile Gas Natural's past earnings, revenue and cash flow.

What Does the ROCE Trend For Naturgy Chile Gas Natural Tell Us?

Naturgy Chile Gas Natural is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 35% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Key Takeaway

To sum it up, Naturgy Chile Gas Natural has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 336% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Naturgy Chile Gas Natural can keep these trends up, it could have a bright future ahead.

Naturgy Chile Gas Natural does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...

While Naturgy Chile Gas Natural 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.