CropEnergies (ETR:CE2) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So on that note, CropEnergies (ETR:CE2) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for CropEnergies:

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

0.19 = €114m ÷ (€727m - €120m) (Based on the trailing twelve months to November 2020).

Therefore, CropEnergies has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Oil and Gas industry average of 6.5% it's much better.

Check out our latest analysis for CropEnergies

In the above chart we have measured CropEnergies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for CropEnergies.

So How Is CropEnergies' ROCE Trending?

We like the trends that we're seeing from CropEnergies. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 19%. The amount of capital employed has increased too, by 26%. So we're very much inspired by what we're seeing at CropEnergies thanks to its ability to profitably reinvest capital.

What We Can Learn From CropEnergies' ROCE

To sum it up, CropEnergies has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 246% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for CropEnergies (of which 1 is a bit unpleasant!) that you should know about.

While CropEnergies 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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