E4U (SEP:EFORU) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 E4U's (SEP:EFORU) 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. Analysts use this formula to calculate it for E4U:

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

0.18 = Kč57m ÷ (Kč343m - Kč35m) (Based on the trailing twelve months to December 2021).

Thus, E4U has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 6.7% generated by the Renewable Energy industry.

Check out our latest analysis for E4U

Historical performance is a great place to start when researching a stock so above you can see the gauge for E4U's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of E4U, check out these free graphs here.

How Are Returns Trending?

E4U is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 30% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On E4U's ROCE

To bring it all together, E4U has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 47% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 2 warning signs for E4U that we think you should be aware of.

While E4U 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.