Returns On Capital Are Showing Encouraging Signs At EnviTec Biogas (ETR:ETG)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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)?

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 EnviTec Biogas:

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

0.084 = €16m ÷ (€249m - €53m) (Based on the trailing twelve months to June 2020).

Thus, EnviTec Biogas has an ROCE of 8.4%. In absolute terms, that's a low return, but it's much better than the Oil and Gas industry average of 7.0%.

View 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.

What Can We Tell From EnviTec Biogas' ROCE Trend?

EnviTec Biogas' ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 575% 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.

The Key Takeaway

To sum it up, EnviTec Biogas is collecting higher returns from the same amount of capital, and that's impressive. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, EnviTec Biogas does come with some risks, and we've found 3 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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