Here’s What’s Happening With Returns At R Energy 1 (CSE:ROEN)

By
Simply Wall St
Published
March 19, 2021
CSE:ROEN
Source: Shutterstock

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in R Energy 1's (CSE:ROEN) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on R Energy 1 is:

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

0.11 = €1.9m ÷ (€19m - €2.3m) (Based on the trailing twelve months to June 2020).

Therefore, R Energy 1 has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.2% generated by the Renewable Energy industry.

View our latest analysis for R Energy 1

roce
CSE:ROEN Return on Capital Employed March 20th 2021

Historical performance is a great place to start when researching a stock so above you can see the gauge for R Energy 1's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of R Energy 1, check out these free graphs here.

What Can We Tell From R Energy 1's ROCE Trend?

The trends we've noticed at R Energy 1 are quite reassuring. The numbers show that in the last three years, the returns generated on capital employed have grown considerably to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 124% 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.

What We Can Learn From R Energy 1's ROCE

All in all, it's terrific to see that R Energy 1 is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 30% to shareholders over the last three years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

R Energy 1 does have some risks, we noticed 5 warning signs (and 2 which shouldn't be ignored) we think you should know about.

While R Energy 1 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. 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.
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