CropEnergies (ETR:CE2) Is Investing Its Capital With Increasing Efficiency

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. With that in mind, the ROCE of CropEnergies (ETR:CE2) looks great, so lets see what the trend can tell us.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for CropEnergies:

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

0.30 = €253m ÷ (€1.0b - €207m) (Based on the trailing twelve months to February 2023).

Thus, CropEnergies has an ROCE of 30%. On its own, that's a very good return and it's on par with the returns earned by companies in a similar industry.

View our latest analysis for CropEnergies

Above you can see how the current ROCE for CropEnergies compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for CropEnergies

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at CropEnergies. The data shows that returns on capital have increased substantially over the last five years to 30%. The amount of capital employed has increased too, by 70%. 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 Bottom Line

To sum it up, CropEnergies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 128% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.