Investors Will Want CEZ a. s' (SEP:CEZ) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Speaking of which, we noticed some great changes in CEZ a. s' (SEP:CEZ) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on CEZ a. s is:

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

0.17 = Kč95b ÷ (Kč769b - Kč206b) (Based on the trailing twelve months to June 2024).

Thus, CEZ a. s has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 7.5% generated by the Electric Utilities industry.

Check out our latest analysis for CEZ a. s

Above you can see how the current ROCE for CEZ a. s compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering CEZ a. s for free.

How Are Returns Trending?

CEZ a. s has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 178% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On CEZ a. s' ROCE

To sum it up, CEZ a. s is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing CEZ a. s we've found 3 warning signs (1 can't be ignored!) that you should be aware of before investing here.

While CEZ a. s 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.