Investors Will Want EnviTec Biogas' (ETR:ETG) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at EnviTec Biogas (ETR:ETG) so let's look a bit deeper.

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. To calculate this metric for EnviTec Biogas, this is the formula:

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

0.083 = €15m ÷ (€232m - €53m) (Based on the trailing twelve months to June 2021).

Thus, EnviTec Biogas has an ROCE of 8.3%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 13%.

See our latest analysis for EnviTec Biogas

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating EnviTec Biogas' past further, check out this free graph of past earnings, revenue and cash flow.

So How Is EnviTec Biogas' ROCE Trending?

EnviTec Biogas' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 1,004% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On EnviTec Biogas' ROCE

In summary, we're delighted to see that EnviTec Biogas has been able to increase efficiencies and earn higher rates of return on the same amount 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.

If you want to continue researching EnviTec Biogas, you might be interested to know about the 2 warning signs that our analysis has discovered.

While EnviTec Biogas 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.