EnviTec Biogas (ETR:ETG) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at EnviTec Biogas (ETR:ETG) and its trend of ROCE, we really liked what we saw.

What Is 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 EnviTec Biogas:

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

0.13 = €21m ÷ (€253m - €83m) (Based on the trailing twelve months to December 2021).

Therefore, EnviTec Biogas has an ROCE of 13%. In absolute terms, that's a pretty standard return but compared to the Oil and Gas industry average it falls behind.

View our latest analysis for EnviTec Biogas

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

How Are Returns Trending?

We're pretty happy with how the ROCE has been trending at EnviTec Biogas. We found that the returns on capital employed over the last five years have risen by 554%. The company is now earning €0.1 per dollar of capital employed. In regards to capital employed, EnviTec Biogas appears to been achieving more with less, since the business is using 21% less capital to run its operation. EnviTec Biogas may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

Our Take On EnviTec Biogas' ROCE

In summary, it's great to see that EnviTec Biogas has been able to turn things around and earn higher returns on lower amounts of capital. 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 EnviTec Biogas can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 1 warning sign for EnviTec Biogas you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.