Stock Analysis

Why The 30% Return On Capital At CropEnergies (ETR:CE2) Should Have Your Attention

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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in CropEnergies' (ETR:CE2) returns on capital, so let's have a look.

What Is 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 CropEnergies is:

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

0.30 = €268m ÷ (€1.1b - €210m) (Based on the trailing twelve months to November 2022).

Therefore, CropEnergies has an ROCE of 30%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 23%.

View our latest analysis for CropEnergies

XTRA:CE2 Return on Capital Employed March 16th 2023

In the above chart we have measured CropEnergies' prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From CropEnergies' ROCE Trend?

The trends we've noticed at CropEnergies are quite reassuring. 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 88%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that CropEnergies is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if CropEnergies can keep these trends up, it could have a bright future ahead.

On a final note, we found 2 warning signs for CropEnergies (1 shouldn't be ignored) you should be aware of.

CropEnergies is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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